A public company which has issued a prospectus cannot commence business or exercise any borrowing powers unless:-
(a) The minimum subscription has been raised.
(b) Every director has paid to the company on each of the shares taken,
or contracted to be taken by him and for which he is liable to pay cash.
(c) No money is or may become liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason of any failure to comply or obtain permission for the shares or debentures to be dealt in on any stock exchange.
If the minimum subscription was not raised, the company can only commence business if:-
(a) There has been delivered to the registrar for registration a statement in lieu of
(b) Every director of the company has paid to the company on each of the shares taken.
(c) There has been delivered to the Registrar for registration a statutory declaration in Form No. 212 by the secretary that condition (b) above has been complied with.
The registrar shall, on delivery to him of the relevant form, or statement in lieu of prospectus, certify that the company is entitled to commence business.
Issue of Shares at Discount
A company issues shares at a discount when shares are issued at a price less that the face value.
Section 59 of the Act permits a company to issue the shares at a discount if:-
(i) The shares to be issued must be of a class already issued.
(ii) Such issue is authorized by a resolution passed in general meeting.
(iii) The resolution specifies the maximum rate of discount.
(i) Not less than one year has elapsed since the company was entitled to commence business. This provision obviates the risk of hasty or premature issue at a discount.
(ii) The issue is sanctioned by the court.
(iii) The issue is made within one month after the court’s sanction.
Issue of Shares at a Premium
A company is free to sell its shares at a premium, that is, at a price higher than nominal value. The premium received on issue of shares must be transferred to “Share Premium Account”, under Section 58 (1).
Subsection 2 of the Act provides that the share premium account may be used for the following purposes:-
(i) For issuing to the members as fully paid bonus shares, the unissued shares of the company.
(ii) For writing off preliminary expenses of the company.
(iii) For writing off expenses, commission or discount on the issue of shares or debentures of the company.
(iv) For providing for the repayment of premium payable on redemption of redeemable preference shares or debentures.
Note: Dividend cannot be paid out of share premium account as this will amount to reduction of capital without the confirmation of the court, and hence ultra vires the company.