Issue of share

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Senthil Kumar (Querist)
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12 June 2012 Can a company's subscriber's to the memorandum subscribe for shares at a premium at the time of incorporation?

CS GURVINDER SINGH

CS GURVINDER SINGH (Expert)
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17 June 2012 Yes they can

Senthil Kumar

Senthil Kumar (Querist)
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17 June 2012 Subscribers to the Memorandum cannot be issued shares at a premium. The reasons for arriving at this answer are as follows: First, Section 78 of the CA, 1956 Application of Premium received on issue of shares reads as follows: "1) Where a COMPANY issues shares at a premium, whether for cash or otherwise; a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the (Securities) premium account...." This has to be noted that a COMPANY can only issue shares at a premium; When does a company comes in to existence? When the subscribers agree to form a company, sign the Memorandum and Articles of association, and submit the requisite form with the Registrar of Companies. The Registrar if he thinks fit approves the same by issue of Certificate of incorporation. The date on which the incorporation certificate is issued will be the date on which the company is deemed to be in existence. Therefore, it is clear that a company can only issue shares at a premium and whereas at the time of subscription of shares the Company does not exist. Secondly, The Memorandum is the document where the subscribers agree in writing to subscribe for the shares of the company. As per the provisions of Section 14 of the CA, 1956, "The memorandum of association of a company shall be in such one of the Forms in Tables B,C,D and E in Schedule I as may be applicable to the case of the company, or in a form as near thereto as circumstances admit" "Table B (Memorandum of Association of a company limited by shares) of Schedule I. The subscription clause reads as follows: We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names." The clause provides for number of shares and not the price at which the shares are subscribed for. In case the shares are issued at a premium, the words in the declaration has to be modified accordingly, which Section 14 does not provide form. Section 14 strictly states that the memorandum shall be in such one of the Forms in Tables B,C,D and E in Schedule I. If the intention of the legislature for permitting subscribers to take shares at a premium, then the words in the declaration would have been provided.

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CS GURVINDER SINGH

CS GURVINDER SINGH (Expert)
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17 June 2012 No effect/Linking on Wording of Subscription Clause and MOA,

as MOA Contains only number of shares and not the Value

Effect only on Balance Sheet

Subscribers shall have minimum prescribed capital. and any amount received above the Nominal Value as Premium shall be credited to Security Premium Account and debited to Cash/Bank Account