Skip to content

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

Meridian Textiles Ltd, an unlisted public company, has an authorised capital of ₹5 crore. Its articles are silent on issue of shares at a discount. The board proposes to issue 10,000 equity shares of ₹10 each at ₹9 per share to the general public, as a one-time measure to raise funds quickly. What is the legal position?

The issue is void. The Companies Act, 2013 prohibits issuing shares at a discount, with sweat equity shares as the only exception. Neither a board resolution nor shareholder approval can validate it, and there is no permitted percentage of discount, so shares must be issued at par or at a premium.

  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 void because a company cannot issue shares at a discount, other than sweat equity sharesCorrect
  4. DThe issue is valid if the discount does not exceed 10% of the face value

Explanation

Under the Companies Act, 2013 a company cannot issue shares at a discount, except sweat equity shares issued under the Act. Board or shareholder approval cannot cure this, and the Act sets no 10% safe limit. An issue at a discount is void.

Did you get it right without looking?

One question tells you little. A timed set on Share Capital and Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Share Capital and DebenturesFree diagnostic mock

More Share Capital and Debentures questions