Question

Which of the following is not a condition for issue of shares at a discount?

• A. The Memorandum of Association must authorise the company for issue of shares at a discount
• B. The issue must be authorised by passing an ordinary resolution in the General Meeting and must be confirmed by the Company Law Board
• C. The shares should be a class of shares already issued
• D. At least one year must have elapsed since the company was entitled to commence business

Answer 1

The correct option is A The Memorandum of Association must authorise the company for issue of shares at a discount

Conditions for Issue of Shares at Discount

1. In order to issue the shares at a price less than the face value, the company has to get permission from the relevant authority. For seeking permission, they should call and upon a general meeting and discuss and authorize the matter in that meeting.
2. There is a cap on the rate of discount. A company cannot issue any shares at more than 10% discount.
3. The company should issue the shares within 60 days of receiving permission from the relevant authority. In certain cases, the company can extend this time frame after getting permission in the permission.
4. The company cannot issue these shares before passing of 1 year from the date of commencement of business.
5. The shares must belong to the same class of shares which are already available in the market. For example, if the has previously issued Equity shares then this time also, the company has to issue Equity shares only.
6. Also, the company has to acquire the sanction by the Central Government after getting approval from the general meeting.