Video 4 --> Chapter IV--> Share Capital and Debentures

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 Section 51-->Payment of Dividend in Proportion to Amount Paid-Up.

A company may, if so authorised by its articles, pay dividends in proportion to the amount paid- up on each share.
 Section 51-->Payment of Dividend in Proportion to Amount Paid-Up.

Company has called up Rs. 5 on each share. Mr. C has paid only Rs. 3 on share. Company declared dividend @ Rs. 1 per share

Normal case Section 51- With permission of AOA

Dividend = Re.1
Dividend = Re.1 Dividend = Re.1 Dividend=Rs.
Dividend = Re.1 Dividend = Re.1 0.60

Mr.A --> Rs. 5 Mr.B --> Rs. 5 Mr.C --> Rs. 3 Mr.A --> Rs. 5 Mr.B --> Rs. 5 Mr.C --> Rs. 3
paid up on 100 paid up on 200 paid up on 500 paid up on 100 paid up on 200 paid up on
shares shares shares shares shares 500 shares
 Section 52-->Application of Premiums received on issue of shares

Suppose a company issues 1,00,000 shares of face value Rs. 10 each at Rs.12 per share.
Thus the difference between the Issue Price and the face value will be known as Securities Premium.
In the above example, Securities Premium is
IP-FV= Rs.(12-10)(100000)= Rs.2,00,000

This Rs.2,00,000 will be credited to a separate account

known as ‘Securities Premium Account’

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Section 52-->Application of Premiums received on issue of shares

The securities premium account can be utilised -:

(a) For issue of fully paid bonus shares;

(b) in writing off the preliminary expenses of the company;

(c) in writing off the expenses of, or the commission paid or discount
allowed on, any issue of shares or debentures of the company;

(d) in providing for the premium payable on the redemption of any

redeemable preference shares or of any debentures of the company;

(e) for the buyback of shares.

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 Section 53--> Prohibition on Issue of Shares at Discount

Company shall not issue shares at a discount. If the company does so, that share is void.

Exception
1) Sweat equity shares issued to employees
2) Shares issued to creditors where their debt is converted into shares
under any scheme as per RBI regulations.

Term Explainer
Discount here means a value less than the face value of shares.
 Section 53--> Prohibition on Issue of Shares at Discount

Failure to comply with provisions of this section

❑ Penalty on company & every officer in default-->

Lower of-->
• Amount raised through such issue at discount OR
• Rs.5 Lakh

❑ Company shall also be liable to refund all monies received with interest at the rate of twelve per cent per annum from
the date of issue of such shares to the persons to whom such shares have been issued.
 Section 54--> Issue of sweat equity shares

'Sweat equity shares' are such equity shares, which are issued by a Company to its directors or employees at a discount or
free of cost for providing their know-how or other benefits to company.

a permanent employee of the company who has

been working in India or outside India
OR

Employee means a director of the company, whether a whole time

director or not

OR

an employee or a director of a subsidiary or a

holding company of the company

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 Section 54--> Issue of sweat equity shares

Conditions for issuing sweat equity shares

i. a company may issue sweat equity shares of a class of shares already issued.

ii. the issue is authorised by a special resolution passed by the company;

iii. the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of
directors or employees to whom such equity shares are to be issued

iv. These sweat equity shares shall have same rights, limitations and restrictions as of other equity shares.(Rank Pari passu)

v. Where company’s equity shares are listed, then issue of sweat equity shares shall be in accordance with SEBI guidelines.
 Section 54--> Issue of sweat equity shares

Validity of SR-->The special resolution authorising the issue of sweat equity shares shall be valid for making the
allotment within a period of not more than twelve months from the date of passing of the special resolution.

The company shall not issue sweat equity shares for more than

Higher of
• 15% of paid up equity
25 % of paid up equity
capital
capital
OR
• Rs. 5 crores

In a Financial Year At any time

Section 54--> Issue of sweat equity shares

Exception
A start up company, may issue
sweat equity shares

not exceeding fifty percent of

its paid up capital

Upto 10 years from the date of its

incorporation or registration.
 Section 54--> Issue of sweat equity shares

Lock in period→ The sweat equity shares issued to directors or employees shall be locked in for a period of three
years from the date of allotment

• The fact that the share certificates are under lock-in and the period of expiry of lock in shall be mentioned in a
prominent manner on the share certificate.

Valuation of share price and intellectual rights--> The value shall be determined by a registered valuer.

• The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3

• The Register of Sweat Equity Shares shall be maintained at the registered office of the company or such other
place as the Board may decide.

• The entries in the register shall be authenticated by the Company Secretary of the company or by any other
person authorized by the Board for the purpose.
 Section 54--> Issue of sweat equity shares

The non cash consideration is a

It will be taken to balance sheet
depreciable asset

The non cash consideration is not It will be taken to profit & loss
a depreciable asset account as an expense

The amount of sweat equity shares issued shall be treated as part of managerial remuneration, if the following
conditions are fulfilled, namely.-
(a) the sweat equity shares are issued to any director or manager; and
(b) they are issued for consideration other than cash, which does not take the form of an asset which can be carried
to the balance sheet of the company.
 Quick Questions for Revision

The Lock in period for sweat equity shares issued to a director shall be ___________ years 3

A start up company, may issue sweat equity shares not exceeding ______________ of its paid up capital 50%
upto 10 years from the date of its incorporation or registration.

The special resolution authorising the issue of sweat equity shares shall be valid for making the
allotment within a period of not more than __________ from the date of passing of the special 12 months
resolution.
Happy Learning!