The MCA has recently notified certain amendments to the Company (Share Capital and Debentures) Rules, 2014, to relax the conditions applicable for issue of various kinds of share capital and debentures. Some of the significant amendments are discussed here.
Under the existing rules, a company was prohibited from issuing equity shares with differential voting rights if the company had defaulted in payment of dividend on preference shares or of any kind of loans. However, the amendment has allowed the company to do so on the expiry of five years from the date when the default was made good. Currently, a company cannot issue sweat equity shares exceeding 25% of the paid up capital of the company. To make the rule more start-up friendly, it has been decided to allow start-ups to issue up to 50% of sweat equity shares for the first five years of their registration or incorporation.
Further, the requirement for a company making a preferential offer to make it fully paid up at the time of allotment itself, has been removed. This would enable companies to take the money by way of various calls in instalments, rather than taking the entire money upfront. Also, in case of a company without a share capital, an increase in the number of members will be considered as alteration of the company’s share capital.
Earlier, a company could issue secured debentures by securing them against its movable/immovable property. However, pursuant to the amendment, companies may secure such debentures against the property of their holding or subsidiary or associate companies. Further, the requirement of the Debenture Redemption Reserve has been reduced to 25% of the value of the outstanding debentures from the existing requirement of 25% of the value of debentures, which meant the whole of a company’s debentures.
The government has, by way of these amendments sought to make the law more issuer friendly, to lower instances of non-compliance and encourage more companies to issue shares and debentures to the public.