Doing Business in India - RSM Austria

On winding up, preference shareholders receive first priority for repayment of
capital, with the equity shareholders being entitled to the remaining surplus, if any.
2.3.3 A company may issue shares at a premium, which can be utilized only for specified
purposes provided under the Companies Act, 1956.
A company may issue shares at a discount i.e. price less than the par value of shares,
subject to the approval of the members of the general body meeting and approval of
Company Law Board.
2.4 Debentures
Companies may also issue debentures. A debenture is an acknowledgement of debt
given under the common seal of the company. They are normally secured by a
charge on the company’s assets, bearing a fixed rate of interest and are redeemable
at a future date. Debentures may be wholly or partially convertible into shares at a
stated date.
The money raised through debentures forms a part of company’s capital structure
though it does not form part of the company’s share capital.
Public limited listed companies are allowed to issue debentures as per the
guidelines framed by The Securities and Exchange Board of India (SEBI). SEBI now
permits companies to issue convertible or non-convertible debentures. Every listed
Company desirous of issuance of debentures must list all debentures with the stock
exchange irrespective of the mode of issuance i.e. whether issued on private
placement basis or through public/rights issue, and it shall be done through a
separate Listing Agreement on Debentures. Some of the important conditions are
compulsory credit rating, appointment of Trustees and creation of Debenture
Redemption Reserve. Debentures issued by unlisted companies also need to be
secured. Listed Companies are now permitted to make a combined offering of Non
Convertible Debentures with warrants.
2.5 Public Deposits
Acceptance of deposits from the public is another major source of raising funds. The
Government in consultation with RBI has prescribed the upper limits, the manner
and the conditions subject to which, deposits may be invited or accepted by a
company from the public/ members of that company. Only a Public Limited
Company can raise such public deposits. However, limits are prescribed for
acceptance of deposits by companies are 10% and/or 25% of the aggregate of the
Company’s paid-up capital and free reserves for Public Companies and 35% of the
aggregate of its paid-up capital and free reserves for Government Companies.
2.6 Directors
A company primarily acts through two (2) agencies, a general body of shareholders
and the Board of Directors. The Board of Directors is a managerial body and its
accountability to shareholders must be assured.
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