What is the procedure that a public limited company must adopt when it issues shares to the public for the first time?

Procedure that a public limited company must adopt when it issues shares to the public for the first time

The audit of Share Capital is necessary on incorporation and afterwards as well as whenever the Directors decide to increase the subscribed Share Capital. To verify capital newly issued, the auditor should have the following points in view:

(1) He should confirm that the permission of the Controller of Capital Issues to the allotment of capital has been obtained. It is to be noted that when the capital is more than twenty five lakh rupees, the permission of the Controller of Capital Issues is necessary under the Capital Issues (Exemption) order, 1961. Such a certificate in original should be examined by the auditor.

(2) It should be seen that Prospectus or a Statement in lieu of Prospectus has been filed with the Registrar. This is necessary in case of the first allotment of shares. It is to be noted that:

Image Source: corpxervices.com

(a) A Prospectus will include in it all the details as required under the Act;

(b) A Prospectus should be duly signed and dated by the Directors of the company as required by the Act; and

(c) No Prospectus will be issued more than ninety days after the date on which a copy thereof is delivered for registration.

(3) No allotment shall be made of any Share Capital of a company offered to the public for subscription unless the amount stated in the Prospectus as the minimum amount has been subscribed. The provisions of sections 69 and 70 have to be complied with in this connection.

Restrictions on Allotment of Shares:

(1) No allotment shall be made of any Share Capital of a company unless any sum payable on application for the amount so stated has been paid to and received by the company whether in cash or by a cheque or other instrument which has been paid.

Minimum Subscription:

The minimum amount which in the opinion of the Directors or of the signatories of the Memorandum, must be raised by the issue of shares in the Minimum Subscription.

The following items decide the total amount of the minimum subscription:

(a) Purchase price of property to be paid in whole or in part out of the proceeds of the issue.

(b) Preliminary expenses and underwriting commission payable by the company.

(c) Repayment of any sums borrowed by the company for the above purposes.

(d) Working Capital.

(e) Any other expenditure, stating the nature and purpose thereof and the estimated amount in each case.

The Prospectus issued by the company should contain full information about the minimum subscription.

(2) The company has received the sum payable on application in respect of shares to be allotted.

(3) The amount payable on application on each share must not be less than five percent of the nominal value of the share.

All sums so received from the applications for share must be deposited in a Scheduled Bank until the certificate to commence business is obtained or they are returned in accordance with provisions of section 69(5).

In the event of any contravention of the provisions of these rules, every Promoter, Director or other person who is knowingly responsible for such contravention shall be punishable with fame which may extend to five thousand rupees.

If aforesaid conditions have not been complied with within 120 days after the first issue of the Prospectus, all moneys received on this account must be repaid, without interest, within 130 days after the issue of the prospectus, and if not, the Directors shall be jointly and severally liable to repay the same with interest at six percent per annum from the expiry-of the one hundred and thirtieth day.

(4) Under section 75, a company is required to file with the- Registrar within thirty days a return of allotment containing the particulars given below:

(a) Shares issued for cash,

(b) Shares issued for consideration other than cash.

(c) Bonus Shares allotted.

(5) Every company should within three months after the allotment of any of the shares have ready for delivery the certificates of all shares, debentures, etc.

(6) Entries should be passed into the Register of Members immediately.