Issue of shares to a non resident

This query is : Resolved

Ansar (Querist)
Follow

15 December 2014 If the Face Value of Shares is Rs. 10/- and Fair value is Rs 3/- and the Company wishes to issue Shares at Rs 6/- can it make so..?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
Follow

15 December 2014 No ,because section 53 of the 2013 act prohibits issue of shares at a discount.

Ansar

Ansar (Querist)
Follow

15 December 2014 thanks for your comment sir, is this provision applicable for non resident share holder also ?

Upgrade to CAclubindia Pro. Subscribe Now!

Ansar

Ansar (Querist)
Follow

15 December 2014 Further whats the criteria for the same if i am trasfferring my shares to a non resident

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

02 August 2024 Issuing shares to a non-resident and transferring shares to a non-resident involve specific regulations under the Foreign Exchange Management Act (FEMA), the Companies Act, 2013, and other relevant regulations. Here’s a breakdown of the provisions and procedures applicable:

### Issuing Shares to a Non-Resident

**1. Issuing Shares at a Premium:**

- **Face Value vs. Fair Value:**
- **Face Value:** The nominal value of the share (e.g., Rs. 10).
- **Fair Value:** The intrinsic value of the share as determined by valuation (e.g., Rs. 3).
- **Issue Price:** If the company wishes to issue shares at Rs. 6, it is acceptable as long as it is not below the face value. The issue price (Rs. 6) is above the face value but below the fair value, which is typically acceptable provided it complies with applicable regulations.

**2. Regulatory Compliance:**

- **FEMA Compliance:** Under FEMA, the issue price for shares issued to non-residents should comply with the pricing guidelines set by the Reserve Bank of India (RBI). As per FEMA regulations, the issue price should not be below the fair market value of the shares as determined by a recognized valuation method. In this case, issuing shares at Rs. 6 when the fair value is Rs. 3 might need to be justified and comply with FEMA guidelines.

- **RBI Approval:** For issuing shares to non-residents, the company must obtain prior approval from the RBI or adhere to the guidelines provided under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. If the issue price is below the fair value, RBI’s approval may be required.

**3. Pricing Guidelines:**

- **Valuation Report:** Obtain a valuation report from a registered valuer to justify the pricing of shares if the issue price is below the fair market value.
- **Compliance with Pricing:** Ensure that the pricing complies with both FEMA and Companies Act regulations. Issue price should be in line with the pricing guidelines issued by the RBI.

### Transfer of Shares to a Non-Resident

**1. Transfer Pricing:**

- **Pricing for Transfer:** Shares can be transferred to a non-resident at a price agreed between the parties, but it must comply with the fair market value and FEMA guidelines. The transfer should not be at a price below the fair market value as determined by a registered valuer.

**2. Documentation and Approval:**

- **Valuation Report:** Obtain a valuation report to determine the fair market value of the shares.
- **RBI Reporting:** File the necessary forms and obtain RBI approval if required. The transfer should be reported to the RBI through Form FC-TRS (Foreign Contribution Transfer of Shares) and comply with FEMA regulations.

**3. Regulatory Compliance:**

- **FEMA Compliance:** Ensure that the transfer complies with the Foreign Exchange Management Act and any guidelines issued by the RBI.
- **Companies Act Compliance:** Ensure compliance with the Companies Act, 2013, particularly the provisions related to the issuance and transfer of shares.

### Summary of Key Steps:

1. **For Issuing Shares:**
- Ensure the issue price complies with FEMA regulations and is not below the fair market value.
- Obtain a valuation report if required.
- Seek RBI approval if the issue price is below fair market value.
- File necessary forms with the Registrar of Companies (ROC) and RBI.

2. **For Transferring Shares:**
- Determine the fair market value of the shares.
- Ensure the transfer price is in line with the fair market value.
- Obtain a valuation report if necessary.
- File Form FC-TRS with the RBI and comply with all regulatory requirements.

By adhering to these guidelines and regulatory requirements, the company can issue and transfer shares to non-residents while ensuring compliance with relevant laws and regulations.