Section 81 (1) further issue of capital

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Guest

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29 December 2011 What is the relevance of following used in section 81 (1A) of Companies Act, 1956 :

At any time after expiry of 2 yrs from formation of company or at any time after expiry of 1 yr from allotment of shares made after formation , whichever is earlier.

To my mind section 81 for further issue of shares (right issue) in public company is attracted all the times after incorporation of company. Is it right ?

what is the basic difference between section 81 and 81 (1A) of Companies Act.

Guest

Guest (Querist)

29 December 2011 Pls read section 81 (1A) as section 81 (1) in the first line of my query. It was a punching error. Sorry.

Guest

Guest (Querist)

29 December 2011 Pls reply asap, many thanks in anticipation.

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CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 Section 81 does not apply to the issue of further shares by a public company at any time within 2 years from the formation of company or 1 year from the first allotment of shares, whichever is earlier.

In other words, any further shares issued by a public company within the aforesaid period need not be offered to the shareholders on right basis.

Difference between 81(1) & 81(1A)
Section 81 contains provisions on "Further issue of capital", and provide a statutory right of existing shareholders to have offered the new shares. Thus, this section gives a Company's existing equity shareholders a pre-emptive right to get the further shares

Whereas Section 81(1A) provides for relaxation from Section 81(1).It provides that further shares may be offered to any person other than existing shareholders.

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Guest

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30 December 2011 Thanks mitesh so much for your explanation in simple language.

Can u also tell me, in case my company is incorporated on 09.05.2011 then from which date provision of section 81 will be applicable on my company ? I am planning to allot shares on 31st December 2011.

Also from which date period of "1 year from first allotment of shares" is counted ??? What is the meaning of first allotment here, first allotment means shares alloted on incorporation i.e. 09.05.2011 or from 31.12.2011 in my case.

Thanks, Kind Regards, Neha

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 Dear Neha,

The period of one year specified in sub-section (1) is to be counted from the date on which the company has allotted any shares for the first time.

In your case Section 81 is not applicable.

Since shares are allotted in your case on 9.05.2011 & company is incorporated on same date, it is within 2 years from the formation of company or 1 year from the first allotment of shares, whichever is earlier. Section 81 is not applicable

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CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 Further in your case it wiil be applicable any further issue made after may 2012.i.e 1 year after the date of first allotment i.e i year from may 2011

Guest

Guest (Querist)

30 December 2011 Dear Mitesh,

Thnx for quick response.

In my case company was incorporated with paid up capital of RS. 5.00 Lacs on 09.05.2011. COB (cert of commencement of business) received on 11.05.2011

There is no further allotment of shares after incorporation.

After incorporation now we are issuing shares on 31.12.2011 for Rs. 5.00 Lacs further. So that paid up capital becomes 10.00 Lacs

My query is what will be treated as date of FIRST ALLOTMENT from where period of 1 year is to be counted? whether it is date of incorporation i.e. 9.05.2011 or 31.12.2011 ??

I trust i am able to explain my query clearly now to you.

Hope to hear from you soon.

Regards, Neha

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Guest

Guest (Querist)

30 December 2011 Ok Mitesh Jee,

Now got it!

One year will be counted from 31.12.2011 which is the date of first allotment.

Section 81 doesnt apply in my case till 30.12.2012.

Hence i can allot shares to any person in any proportion without any restrictions.

Regards, Neha

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 Dear Neha,

Date of first allotment is 09.05.2011

One year is to be counted from date of first allotment i.e 09.05.2011 & not 31.12.2011

Section 81 says One year from the date of first allotment has expired at the time of right issue.

In your case section 81 is not applicable as one is not expired from the date of first allotment i. e from 09.05.2011.

Hope i have clarified your doubts.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 Dear Neha

Hope it is clear to you.

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Guest

Guest (Querist)

30 December 2011 Dear Mitesh,

Now I have become more confused....

Section 81 says : at any time after expiry of one year from the ALLOTMENT of shares in that company made for the first time "AFTER" ITS FORMATION.

So clearly as per my interpretation, one year to be counted from first allotment made after formation (i.e. 31.12.2011)

Moreover even if we assume that 1 year is counted from 09.05.2011 then what is the relevance "after expiry of 2 expiry from formation of company" used in section 81.

Pls clarify in the above case, when period of 2 yr and 1 yr will get complete (whichever is earlier)i.e. when provisions of section 81 will get attracted ?

Pls give your opinion if my understanding of section 81 is wrong ?

Regards, Neha

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 December 2011 still have a doubts?

Guest

Guest (Querist)

30 December 2011 Dear Mitesh,

Even if we assume that 1 year is counted from 09.05.2011 then what is the relevance "after expiry of 2 expiry from formation of company" used in section 81.

Pls clarify in the above case, when period of 2 yr and 1 yr will get complete (whichever is earlier)i.e. when provisions of section 81 will get attracted ?

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Guest

Guest (Querist)

30 December 2011 AOA of my company do not have provision for issue of shares u/s 81(1A)

Pls give me suitable provision which should be incorporated in AOA of my company for authority to issue shares u/s 81 (1A)

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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31 December 2011 You may include following provisions in AOA with suitable modification.

Where the Board of Directors decide to increase the capital of the Company by the issue of new shares, then, subject to any directions to the contrary which may be given by the Company in general meeting,
and, subject only to those directions, such new shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the Company in the proportion, as nearly as circumstances thereto admit, bears to the capital paid up on those shares at that date and such offer shall be made by a notice specifying the number of shares offered and limiting a time not being less than 30 days from the
date of the offer within which the offer, if not accepted, will be deemed to have been declined. After the expiry of the time specified in the notice aforesaid or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner,as they think, most beneficial to the Company. However, offer or invitation to subscribe, on preferential basis, for shares or debentures,
made to fifty or more persons, such offer or invitation shall be treated
as offer or invitation to the public.
(b) Notwithstanding anything contained in the preceding clause,
the Company may :-
(i) by a special resolution; or
(ii) where no such special resolution is passed, if the votes cast,whether on a show of hands or on a poll, as the case may be, in favour of the proposal contained in the resolution moved in that general meeting, including the casting vote, if any, of the Chairman, by the Further Issue of Capital
members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the Board of Directors in this behalf, that the proposal is most beneficial to the Company ; offer further shares to any person or persons, and such person or person may or may not include the persons, who, at the date of the offer, are the holders of the Equity Shares of the Company. The Company may also issue sweat equity shares or shares named otherwise, in the capital of the company, to its directors, employees or
otherwise, subject to and in the manner and further to the extent, as may be prescribed or laid down in the applicable provisions of the Act as well as any guidelines, rules or any notifications issued in that
respect and in force, for the time being.

Jiten Gupta

Jiten Gupta (Expert)
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31 December 2011 Hi,
Allotement means allotement made at any time after incorporation. In your case neha, first allotement date shall be 31st Dec 2011.

So u can allot shares to any person because u are not being covered under section 81(1).

To understand the meaning of Allotement of Shares, try to understand the relevancy of Form 2 which is filed only on Allotement of Shares, not by subscribing to the MOA.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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02 January 2012 Dear Neha,

In my opinion i have referred Old Circular No. 8/16(1)/61-PR, dated 9-5-1961 which was then substituted by Circular No. 2(27)/56- PR, dated 4-10-1976 which i have not considered.

As per the revised circular, shares taken up by the subscriber not to be considered while computing the period of 1 year.

Hence 1st allotment date in your case shall be 31/12/2011.

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Guest

Guest (Querist)

02 January 2012 Thanks mitesh so much!
Many thanks to you!
Kind Regards,
Neha Jain

Guest

Guest (Querist)

02 January 2012 Dear Mitesh,

As my AOA does not have provision for issue of shares u/s 81 (1A), is it COMPULSORY for me to amend AOA before issue of shares u/s 81 (1A).

Whether I can proceed without amending AOA and make preferential allotment?

Can u also mail me provision of AOA in short?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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02 January 2012 Dear neha,

Your AOA must contain relevant provision of Section 81(1A).

Before making preferential allotment please go through UNLISTED PUBLIC COMPANIES (PREFERENTIAL ALLOTMENT) AMENDMENT RULES, 2011

Guest

Guest (Querist)

02 January 2012 Dear Mitesh,

I have checked those rules.

Pls give me relevant provision of section 81 (1A) to be incorporated in AOA, in case you have any other short article in this regard.

Kindly reply asap, matter is urgent.

Thanks.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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02 January 2012 Dear Neha,

Provision of Section 81(1A)to be incorporated in AOA

Notwithstanding anything contained in the preceding clause, the Company in General Meeting may :-
(i) by a special resolution; or
(ii) where no such special resolution is passed, if the votes cast, whether on a show of hands or on a poll, as the case may be, in favour of the proposal contained in the resolution moved in that general meeting, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the Board of Directors in this behalf, that the proposal is most beneficial to the Company ; offer further shares to any person or persons, and such person or person may or may not include the persons, who, at the date of the offer, are the holders of the Equity Shares of the Company, subject to and in the manner and further to the extent, as may be prescribed or laid down in the applicable provisions of the Act as well as any guidelines, rules or any notifications issued in that respect and in force, for the time being.

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Guest

Guest (Querist)

02 January 2012 THANKS MITESH!