Share application money in private limited co
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
10 October 2013
What is the maximum time limit a private company can hold share application money in its balance sheet before allotting shares or refunding money back?
Please advice its urgent
Please advice its urgent
10 October 2013
Hi
Up to the Authorised Share Capital of the Company.
Up to the Authorised Share Capital of the Company.
10 October 2013
Time limit not prescibed in companies act
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10 October 2013
There is no limit. However, under revised schedule VI, you need to disclose, the terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted have to be disclosed. It has also to be disclosed whether the company has sufficient authorised capital to cover the share capital amount resulting from allotment of shares against share application money.
Further, the period for which the share application money has been pending beyond the stipulated period for allotment along with the reasons for delay should be disclosed.
Further, the period for which the share application money has been pending beyond the stipulated period for allotment along with the reasons for delay should be disclosed.
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10 October 2013
After introduction of revised Schedule VI, the company can not ask more than the authorised share capital.
Dear Experts:
If the Company take more than that, then please give justifications.
After introduction of revised Schedule VI, the company can not ask more than the authorised share capital.
Dear Experts:
If the Company take more than that, then please give justifications.
10 October 2013
Agree with Expert,
There is no time period for the same accordingly companies take shelter of same for advances taken from group companies.
There is no time period for the same accordingly companies take shelter of same for advances taken from group companies.
10 October 2013
Dear Experts ......
Give answer of my question.
Give answer of my question.
10 October 2013
Ajay Sir,
The most conservative treatment is to reflect as current liability. However, in absence of any restriction on private companies, we often continue to show it as share application money which is as such not a correct reflection and is often questioned by income tax department (ITO Vs.Nandi Promoters (P) Ltd,)
The most conservative treatment is to reflect as current liability. However, in absence of any restriction on private companies, we often continue to show it as share application money which is as such not a correct reflection and is often questioned by income tax department (ITO Vs.Nandi Promoters (P) Ltd,)
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10 October 2013
Yes, this case law not permit you to take money in excess of authorised capital.
For more given below the link:
http://www.taxmann.com/TaxmannFlashes/Articles/taxmann_com(ART)19-10-11-DTL-14(125).htm?aa=
For more given below the link:
http://www.taxmann.com/TaxmannFlashes/Articles/taxmann_com(ART)19-10-11-DTL-14(125).htm?aa=
10 October 2013
ITO Vs.Nandi Promoters (P) Ltd, Wherein, the A.O. found that :
- the authorized share capital of the company was Rs.1 lakh only
- the share capital of the company has not been increased till passing of the assessment order
- the shareholders were also aware that they company did not intend any increase in share capital, and infact no application for increase has been filed. Under these circumstances, how can the company receive money under the cover of share application money.
Finally, after several hearing, tribunal has allowed the appeal of revenue and concluded with the following facts:
The assesse company has declared that the amount has been received towards share application money from one of its directors which was more than the authorized capital. The assessee has not taken into consideration the provisions of company law for increasing the authorized capital. A procedure has been prescribed under the companies act and other applicable laws for increasing the authorized capital. Ignoring the same, one cannot declare that any cash received is the money received towards share application money.
Hence, no company can receive any money more than its Authorized Share Capital under the Cover of Share Application Money.
ITO Vs.Nandi Promoters (P) Ltd, Wherein, the A.O. found that :
- the authorized share capital of the company was Rs.1 lakh only
- the share capital of the company has not been increased till passing of the assessment order
- the shareholders were also aware that they company did not intend any increase in share capital, and infact no application for increase has been filed. Under these circumstances, how can the company receive money under the cover of share application money.
Finally, after several hearing, tribunal has allowed the appeal of revenue and concluded with the following facts:
The assesse company has declared that the amount has been received towards share application money from one of its directors which was more than the authorized capital. The assessee has not taken into consideration the provisions of company law for increasing the authorized capital. A procedure has been prescribed under the companies act and other applicable laws for increasing the authorized capital. Ignoring the same, one cannot declare that any cash received is the money received towards share application money.
Hence, no company can receive any money more than its Authorized Share Capital under the Cover of Share Application Money.
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10 October 2013
We dont need to follow incometax department guidelines for preparation of financial statements
.
.
As per revised schedule VI and icai guidence note on this regard ShareApplication money recd needs to be shown seperately under share holder funds on face of balance sheet
.
.
As per revised schedule VI and icai guidence note on this regard ShareApplication money recd needs to be shown seperately under share holder funds on face of balance sheet
10 October 2013
Dear Ganesh Sir,
Absolutely but watt income tax hi lagata hai...So it is essential that we consider tax implications before we structure a transaction.
Absolutely but watt income tax hi lagata hai...So it is essential that we consider tax implications before we structure a transaction.
10 October 2013
Ganeshbabu Sir......
My question is can a company take share application money in excess of authorised share capital.
My question is can a company take share application money in excess of authorised share capital.
10 October 2013
The Income tax department will issue notice in this regards to company for giving justification later on.
In that case, what will be the answer of company.
In that case, what will be the answer of company.
Querist : Anonymous
Querist :
Anonymous
(Querist)
10 October 2013
Thanks all experts for your reply.
10 October 2013
Please find below the relevant and highlighted clause regarding amendment in Share Application Money provisions:
Rule 8 of Unlisted Public Companies (Preferential Allotment) Rules, 2003, regarding Invitation and allotment of securities.-
(1) No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier have been completed in terms of sub-section (9) of section 60B of the Companies Act, 1956.
(2) Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of section 67 of the said Act, shall be treated as a public offer and the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be complied with.
(3) All monies payable on subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash.
(4) Any allotment of securities shall be completed within sixty days from the receipt of application money and in case the company is not able to allot the securities within the period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of twelve percent per annum:
Provided that t he monies received on such application shall be kept in a separate bank account and shall not be utilised for any purpose other than—
(i) for adjustment against allotment of securities; or
(ii) for the repayment of monies where the company is unable to allot securities.
(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.
Rule 8 of Unlisted Public Companies (Preferential Allotment) Rules, 2003, regarding Invitation and allotment of securities.-
(1) No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier have been completed in terms of sub-section (9) of section 60B of the Companies Act, 1956.
(2) Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of section 67 of the said Act, shall be treated as a public offer and the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be complied with.
(3) All monies payable on subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash.
(4) Any allotment of securities shall be completed within sixty days from the receipt of application money and in case the company is not able to allot the securities within the period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of twelve percent per annum:
Provided that t he monies received on such application shall be kept in a separate bank account and shall not be utilised for any purpose other than—
(i) for adjustment against allotment of securities; or
(ii) for the repayment of monies where the company is unable to allot securities.
(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.
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10 October 2013
MY INTERPRETATION AND ANALYSIS:
My interpretation and analysis regarding the above amendment in Unlisted Public Companies (Preferential Allotment) Rules, 2003, with respect to the receipt and use of Share Application Money are as follows:
POSITION BEFORE THE ABOVE AMENDMENT
Before the amendment mentioned above there was no provision regarding the receipt and time period and purpose for utilization of Share Application Money. In other words regarding how long can the company show share application money in its Balance Sheet, company Law was silent.
Regarding time limit to convert such share application money into capital the law was completely silent. Practically speaking allotment of shares cannot be kept pending indefinitely. It would also not be proper for a company to indefinitely hold up allotment of shares. However as per practice and keeping in view the Reporting of FDI provisions in FEMA, professionals used to allot share with 6 months [180 days] of the receipt of application money.
POSITION AFTER THE ABOVE AMENDMENT
But after the above said amendment allotment of securities shall be completed within sixty days [60 days] from the receipt of share application money.
In case company fails to allot securities against the share application money within the period of 60 days, it shall repay the application money within 15 days thereafter without interest.
However if company fail to repay the un-utilised share application money within the prescribed time limit of 15 days [fixed for repayment of un-utilised Application money], it will be required to be re-paid with interest at the rate of 12% per annum.
POSITION IN PRIVATE COMPANY
One more notable thing in case of a Private Company is that above Rules are not applicable to a Private Company. Hence position in case of a Private Company shall remain same as it was applicable to a Public company before the above mentioned amendment.
GOOD SECRETARIAL and ACCOUNTING PRACTICE
Share application money is not a part of share capital because it is only application money and is not share capital. It becomes share capital only on allotment of security. In view of this, share application money pending allotment should be treated as current liability in books of accounts and should be disclosed as a current liability and not as a part of share capital.
As per my understanding of good secretarial practice, receipt of Share Application Money should be acknowledged in the board meeting through a board resolution.
It is very much advisable to collect the share application form from the proposed allottee for your record and future reference. You may download the sample share application from the below mentioned link from where I had downloaded the same long way back:
SHARE APPLICATION FORM
https://www.caclubindia.com/forum/download-corporate-law-professional-files-70021.asp
Hope you find the above information useful. Please share your opinion.
Thanks
My interpretation and analysis regarding the above amendment in Unlisted Public Companies (Preferential Allotment) Rules, 2003, with respect to the receipt and use of Share Application Money are as follows:
POSITION BEFORE THE ABOVE AMENDMENT
Before the amendment mentioned above there was no provision regarding the receipt and time period and purpose for utilization of Share Application Money. In other words regarding how long can the company show share application money in its Balance Sheet, company Law was silent.
Regarding time limit to convert such share application money into capital the law was completely silent. Practically speaking allotment of shares cannot be kept pending indefinitely. It would also not be proper for a company to indefinitely hold up allotment of shares. However as per practice and keeping in view the Reporting of FDI provisions in FEMA, professionals used to allot share with 6 months [180 days] of the receipt of application money.
POSITION AFTER THE ABOVE AMENDMENT
But after the above said amendment allotment of securities shall be completed within sixty days [60 days] from the receipt of share application money.
In case company fails to allot securities against the share application money within the period of 60 days, it shall repay the application money within 15 days thereafter without interest.
However if company fail to repay the un-utilised share application money within the prescribed time limit of 15 days [fixed for repayment of un-utilised Application money], it will be required to be re-paid with interest at the rate of 12% per annum.
POSITION IN PRIVATE COMPANY
One more notable thing in case of a Private Company is that above Rules are not applicable to a Private Company. Hence position in case of a Private Company shall remain same as it was applicable to a Public company before the above mentioned amendment.
GOOD SECRETARIAL and ACCOUNTING PRACTICE
Share application money is not a part of share capital because it is only application money and is not share capital. It becomes share capital only on allotment of security. In view of this, share application money pending allotment should be treated as current liability in books of accounts and should be disclosed as a current liability and not as a part of share capital.
As per my understanding of good secretarial practice, receipt of Share Application Money should be acknowledged in the board meeting through a board resolution.
It is very much advisable to collect the share application form from the proposed allottee for your record and future reference. You may download the sample share application from the below mentioned link from where I had downloaded the same long way back:
SHARE APPLICATION FORM
https://www.caclubindia.com/forum/download-corporate-law-professional-files-70021.asp
Hope you find the above information useful. Please share your opinion.
Thanks
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22 May 2014
a pvt. company has share application money received 2 yrs back, and still pending allotment..under the new regime it is to be refunded if not alloted within 60 days..what is the remedy for the company to avoid any kind of violation?? pls reply
09 August 2014
In my opinion, Share Application money received under the Companies Act, 1956 by a Private company should be allotted to proposed shareholders within 60 days of new Act coming in force i.e. 1st April 2014 to show the genuineness of the transaction. If not so done it will be deemed to be deposits under the new Act and can be repaid within 12 month period i.e. by 31st March 2015. The company should file form GNL-2 enclosing DPT-4 by end of August 2014 (date extended from 30th June 2014)in this respect.
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