A company issues shares at a discount if the cash consideration which is receives for them is less than the nominal amount of the issued shares. Issue of shares at a discount is a principal prohibited. However, under Section 59 of the Companies Act shares may be issued at a discount subject to the following restrictions:
– The shares must belong to a class already issued by the company.
– The issue must be authorized by a resolution of the general meeting.
– The resolution of the general meeting must specify the maximum rate of discount at which the shares are to be issued.
– The issue must be sanctioned by the court.
– The shares must be issued within one month of sanction by the court of such other time as the court may allow.
– At least one year must have elapsed from the date the company was entitled to commence business.
– Particulars of the discount must be disclosed in the company prospectus.
The Companies Act restricts a company from issuing shares at a discount. Identify and explain the restrictions.
