Issue of Shares/Debentures
Issue of shares/debentures is a significant financial decision for a company, and it involves several steps to ensure compliance with legal requirements and to raise capital effectively. Below is a general outline of the process for issuing shares or debentures.
Issuing Shares:
1. Board Resolution: The board of directors must pass a resolution authorizing the issuance of shares. This resolution should specify the number of shares to be issued, their class, issue price, and any other relevant terms.
2. Shareholder Approval: Depending on the jurisdiction and the company’s articles of association, shareholder approval may be required for the issuance of shares. If so, convene a general meeting of shareholders to obtain approval through a resolution.
3. Pre-Emption Rights: If the company has pre-emption rights in its articles of association or under applicable law, existing shareholders must be given the opportunity to purchase new shares in proportion to their existing holdings before they are offered to external parties.
4. Allotment: Once authorized, the company can allot the shares to the subscribers. Allotment refers to the formal process of allocating shares to shareholders who have agreed to purchase them. The company should issue share certificates to the subscribers.
5. Filing and Registration: Depending on the jurisdiction, there may be requirements to file documents related to the share issuance with the Companies Registry or other regulatory authorities. This may include forms notifying changes in share capital.
6. Payment: Shareholders must pay for the shares they have subscribed to as per the terms set out in the offer. Payment can be made in cash, property, or through other means permitted by law. The company should ensure that the payment is received and properly recorded.
7. Update Registers: The company’s register of members should be updated to reflect the issuance of new shares. This includes recording details such as the names and addresses of shareholders, the number and class of shares held, and the amount paid for the shares.
Issuing Debentures:
1. Board Resolution: Similar to issuing shares, the board of directors must pass a resolution authorizing the issuance of debentures. This resolution should specify the terms of the debentures, including the principal amount, interest rate, maturity date, and any security provided.
2. Debenture Trust Deed: If the debentures are secured by assets of the company, a debenture trust deed must be executed between the company and the trustees appointed to represent the debenture holders’ interests.
3. Registration of Charges: If the debentures are secured by specific assets of the company, such as property or equipment, the company may need to register charges with the Companies Registry or other relevant authorities.
4. Allotment and Issue: Once authorized, the company can allot and issue the debentures to the subscribers. The terms of the debentures should be clearly communicated to the debenture holders.
5. Payment of Interest: The company must ensure timely payment of interest to the debenture holders as per the terms of the debenture instrument. Failure to make interest payments could result in default.
6. Redemption: If the debentures are redeemable, the company must make arrangements to redeem them at maturity or upon any other specified event. This may involve setting aside funds for redemption and notifying debenture holders accordingly.
7. Maintain Records: Keep detailed records of the debenture issuance, including the terms of the debentures, the names and addresses of debenture holders, and records of interest payments and redemptions.
8. Compliance and Disclosure: Ensure compliance with all relevant laws, regulations, and stock exchange requirements regarding the issuance of debentures. This may include making necessary disclosures to shareholders and regulatory authorities.
It’s essential for companies to seek professional advice from legal and financial experts to ensure compliance with all legal requirements and to structure share or debenture issuances in a manner that meets their financial objectives while protecting the interests of shareholders and debenture holders.
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