Companies (Share Capital and Debentures) Third Amendment Rules, 2016


The  Ministry of Corporate Affairs (“MCA”) has issued the Companies (Share Capital and Debentures) Third Amendment Rules, 2016 (“Amendment Rule”) to further amend the existing Companies (Share Capital and Debentures) Rules, 2014 (“Principal Rules”). A brief summary of the key amendments are provided below:

Equity Shares with differential rights

Any Company which has defaulted in payment of the dividend on preference shares or repayment of any term loan from a Public Financial Institution or State Level Financial Institution or Scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to employees to any authority or default in crediting to Investor Education and Protection Fund (“IEPF”), may now issue equity shares with differential rights upon the expiry of 5 years from the end of the financial year in which such default was made good.

Issue of Sweat equity shares

A start-up company as defined by the Department of Industrial Policy and Promotion (“DIPP”) vide notification number GSR 180(E) dated 17 February 2016, may issue sweat equity shares not exceeding 50% of its paid up capital upto 5 years from the date of its incorporation or registration.

Issue of employee stock options

A start-up company as defined by the DIPP may issue Employee Stock Options to 'an employee who is a promoter or belonging to the promoter group’ or to ‘a director who either himself or through his relative or through a body corporate, directly or indirectly, holds more than 10% of the outstanding equity shares of the company’ upto 5 years from the date of its incorporation or registration.


Issue of shares on preferential basis


  1. The compliance requirement to make party paid securities fully paid up at the time of allotment of securities on preferential basis by an Unlisted Company has been omitted.
  2. An Unlisted Company would now have an option to determine the price of the equity shares pursuant to conversion of any convertible securities offered on a preferential basis either upfront i.e. at the time when the offer of convertible securities is made, on the basis of valuation report of the registered valuer or at the time, which shall not be earlier than 30 days to the date when the holder of convertible security becomes entitled to apply for shares on the basis of valuation report of the registered valuer given not earlier than 60 days of the date when the holder of convertible security becomes entitled to apply for shares. Further, the Company shall take a decision on the pricing option at the time of offer of convertible security itself and make the disclosure in the Explanatory Statement.
  

Notice to Registrar for alteration of share capital

A Company not having share capital and increasing its number of members, is required to file the notice of such alteration electronically with the Registrar of Companies.

Debentures


  1. Companies can now issue secured Debentures by creating a charge on the properties or assets of its holding company or its subsidiaries or associate companies also.
  2. The charge or mortgage created in favour of the Debenture Trustee for the issue of secured Debentures can be created on any specific movable property of the Company, or its holding company or subsidiaries or associate companies or otherwise.
  3. The conditions relating to the creation of Debenture Redemption Reserve has been amended.

The Amendment Rule would be effective from the date of its publication in the Official Gazette.

To read the full text of the Amendment Rule - http://www.mca.gov.in/Ministry/pdf/Rules_19072016.pdf
Companies (Share Capital and Debentures) Third Amendment Rules, 2016 Companies (Share Capital and Debentures) Third Amendment Rules, 2016 Reviewed by Adarsh Madrecha on 16:09:00 Rating: 5

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