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Companies (Amendment) Act 2017 with regard to the Shares Issue at a Discount and Sweat Equity Shares
- a) Issue at a Discount
Issue of shares at a discount to face value was prohibited under the 2013 Act.
The Amendment Act permits companies to issue shares at a discount to its creditors under a statutory resolution plan or debt restructuring scheme in accordance with any guidelines, directions or regulations specified by the Reserve Bank of India .
Though the 1956 Act allowed companies to issue shares at a discount with the prior approval of the Company Law Board, the Companies Law Committee (CLC )noted that this facility was hardly used. The CLC therefore felt that such a relaxation would help restructuring of a distressed company. However, the intention behind limiting the relaxation to a Strategic Debt Restructuring Scheme and other such schemes issued by the RBI is unclear, especially with the introduction of the Insolvency and Bankruptcy Code, 2016 which has led to a paradigm shift in debt recovery in India.
(b) Issue of Sweat Equity Shares
Under the 2013 Act, sweat equity shares could not be issued within 1 year of commencement of business of the company.
The Amendment Act seeks to remove this restriction.
This amendment will enable companies, particularly start-ups, to issue sweat equity shares immediately after incorporation and consequently enable them to attract talent and procure know how and other value additions without any cash flow issues.
(c) Private Placement Process
The Amendment Act has substantially revised the provisions on issuance of shares through a private placement process with a view to make the provisions reader friendly.
- The Amendment Act expressly states that a private placement offer cannot be renounced in favour of a third party.
- The 2013 Act provided that funds raised through private placement could not be utilised until the shares were allotted.
The Amendment Act provides an additional restriction prescribing non-utilisation of funds until the requisite filing has been made with the ROC. The timeline for the filing has also been reduced to 15 days (from 30 days under the 2013 Act).
III. The 2013 Act restricted a company from making a fresh private placement offer while a previous offer was pending.
The Amendment Act seeks to provide flexibility to raise funds by permitting companies to make more than one issue of securities to such class of identified persons as may be prescribed, subject to a maximum of 50 identified persons.