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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Bharat Textiles Ltd, an unlisted public company, has authorised capital of Rs 5 crore. Its articles do not permit the issue of shares at a discount. The board proposes to issue 10,000 equity shares of Rs 10 each to the public at Rs 8 per share, to raise funds quickly. What is the legal position under the Companies Act, 2013?

The issue is void. A company cannot issue shares at a discount under the Companies Act, 2013, except sweat equity shares issued in compliance with the Act. Neither a board resolution, shareholder approval nor Registrar permission can validate an issue of Rs 10 shares at Rs 8.

  1. AThe issue is valid if the board passes a resolution with a majority of directors
  2. BThe issue is valid if the shareholders approve it by an ordinary resolution
  3. CThe issue is valid if the Registrar of Companies gives prior permission
  4. DThe issue is void, because a company cannot issue shares at a discount except sweat equity sharesCorrect

Explanation

The Companies Act, 2013 prohibits issue of shares at a discount, other than sweat equity shares issued under the Act. Any such issue is void. Board or shareholder approval or ROC permission cannot cure this, so the options that allow approval fail.

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