Fresh share issue requirement and time period

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Querist : Anonymous

Querist : Anonymous (Querist)

22 February 2016 Respected All,

Can increase of authorized capital? then issued after that subscription of share with very high security premium within a month creates any problem???
or
Is it any time limitation between increased of authorized capital then issue and subscription of it with a security premium.

praveen

praveen (Expert)
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22 February 2016 There are lot of changes in the companies act 2013 regarding issue of share capital in case of private limited companies. You will need a certificate of valuation from a Chartered Accountant or a merchant banker registered under SEBI for the price that you are issuing for.

For more information contact at
me@mrpraveen.com
www.mrpraveen.net

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Querist : Anonymous

Querist : Anonymous (Querist)

23 February 2016 I want to know that, I want to increase my authorized capital in first week of march. Then issuing some shares to directors who ultimately transfer this share to third party. After that - Some investor are willing to invest in our company, whom we want to issue balance share at very high price .

My query is price at which share issue in favor of third party and investor is different and time lag between this two transaction is very small. Can it create any problem in ROC or IT act.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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25 July 2024 Increasing authorized capital and issuing shares with a high security premium involve compliance with legal and regulatory requirements to avoid potential problems with the Registrar of Companies (ROC) and Income Tax (IT) Act. Here are the key considerations:

### Increasing Authorized Capital

1. **Board and Shareholder Approval**: Increasing authorized capital requires approval from the board of directors and subsequently from the shareholders in a general meeting.

2. **Filing with ROC**: After obtaining shareholder approval, Form SH-7 needs to be filed with the ROC within 30 days of passing the resolution to increase authorized capital.

3. **ROC Approval**: The ROC will verify the documents and approve the increase in authorized capital.

### Issuing Shares with High Security Premium

1. **Valuation of Shares**: Shares issued at a premium must be justified by a proper valuation report prepared by a registered valuer.

2. **Pricing and Premium**: The price at which shares are issued must be substantiated by the valuation report. Any premium charged on shares must reflect the fair market value of the company's shares at the time of issue.

3. **Timing and Compliance**: There is no specific time limit between increasing authorized capital and issuing shares with a premium. However, all shares must be issued within the authorized capital limit approved by the shareholders.

4. **Compliance**: It's crucial to ensure compliance with Section 62(1)(c) of the Companies Act, 2013, which states that shares must be issued within two months from the date of allotment.

### Potential Issues and Precautions

1. **Consistency and Documentation**: Ensure all transactions are properly documented and compliant with Companies Act provisions. Maintain records of board resolutions, shareholder approvals, valuation reports, and filings with ROC.

2. **Avoiding Tax Implications**: Transactions involving shares issued at a premium need to comply with tax regulations to avoid any tax implications, including scrutiny by tax authorities.

3. **Avoiding Preferential Treatment**: Shares issued at different prices to different parties should be justified based on business reasons and valuation reports to avoid allegations of preferential treatment.

### Conclusion

While there is no specific time limitation between increasing authorized capital and issuing shares with a premium, ensuring compliance with regulatory requirements, proper documentation, and valuation of shares is crucial. This approach will mitigate risks of scrutiny by ROC and tax authorities, ensuring smooth operations and transparency in the company's financial dealings. If in doubt, it's advisable to consult with a professional advisor or company secretary to navigate these complexities effectively.