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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Veda Textiles Ltd, a company with share capital, proposes to increase its subscribed capital by issuing further equity shares. Under the Companies Act, 2013 (Section 62), to whom must the shares ordinarily be offered first?

Further shares must first be offered to existing equity shareholders as on the date of the offer, in proportion to the paid-up share capital they hold, through a letter of offer. Other routes, such as ESOPs or preferential allotment, require a special resolution.

  1. APersons who are holders of equity shares at the date of the offer, in proportion to their paid-up share capitalCorrect
  2. BEmployees of the company under a scheme of employees' stock option
  3. CAny persons chosen by the Board on the basis of a valuation report
  4. DPublic financial institutions nominated by the Board

Explanation

Section 62(1)(a) requires the further shares to be offered to existing equity shareholders in proportion, as nearly as circumstances admit, to the paid-up capital held, by a letter of offer. Employee and other-person routes under clauses (b) and (c) need a special resolution and conditions, so they are not the first default route.

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