Caro

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 October 2013 Is clause xviii of CARO applicable to a closely held private company? Is allotment of shares to directors already in the private company amount to preferential allotment?

Sanket

Sanket (Expert)
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18 October 2013 Go to the following link. http://www.knowledgebible.com/forum/showthread.php/5580-Caro-2003-Clause-4-(xviii)-Whether-the-company-has-made-any-preferential-allotment-of-shares-to-parties-and-companies-under-Section-301-of-act

Querist : Anonymous

Querist : Anonymous (Querist)

21 October 2013 Thanks for the reply.
Is issue of share to director covered by Sec 301?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Yes, the issuance of shares to directors by a company is indeed covered under Section 301 of the Companies Act, 2013 (and previously under Section 77 of the Companies Act, 1956). Section 301 primarily deals with restrictions and regulations concerning the issuance of shares at a discount. Here’s how it applies to the issuance of shares to directors:

1. **Prohibition on Issue at Discount**: Section 301 prohibits a company from issuing shares at a discount. A discount here means any consideration less than the nominal value of the shares or the issue price determined by the company, whichever is lower.

2. **Exceptions**: There are certain exceptions provided under Section 301 where shares can be issued at a discount, such as:
- Shares issued to employees or directors under a scheme for the benefit of employees or directors.
- Shares issued for consideration other than cash (such as services rendered or goods supplied).

3. **Approval Required**: For the issuance of shares to directors (or employees) at a price less than the nominal value, approval is required:
- From the company in general meeting, and
- From the Board of Directors.

4. **Conditions**: The approval must specify the maximum rate of discount at which the shares are to be issued. Additionally, the issue must be authorized by the articles of the company.

In the context of shares issued to directors, the company needs to comply with these requirements to ensure that the issuance is legal and properly authorized. Failure to comply with Section 301 can lead to penalties and other legal consequences under the Companies Act, 2013.

It's important for companies to consult legal advisors or company secretaries to ensure compliance with all regulatory requirements when issuing shares to directors or any other party, particularly concerning pricing and approvals under Section 301.