Procedure of Allotment of Shares otherwise than cash

Equity shares represent the ownership of the company which is allotted against some consideration, called as Face Value and Premium, if any. This is a straight forward way to issue shares. Suppose, Face value of an equity share is Rs. 10 and premium on it is Rs. 20, then total consideration will be Rs. 30/-

But complication arises when the company is interested in allotment of shares to some key consultant of the company for his contribution towards the company. Such an individual cannot be granted ESOP (Employee Stock Options), since he is not employee of the company. Similar is the condition with promoter Directors. Issuing shares for consideration other than cash is thus a viable alternative in such cases.

Section 75 of Companies Act, 1956 defines the circumstances under which allotment can be made otherwise than cash.

Section 75:

(1) Whenever a company having a share capital makes any allotment of its shares, the company shall, within 30 days thereafter,—

(a) file with the Registrar a return of the allotments, stating the number and nominal amount of the shares comprised in the allotment, the names, addresses and occupations of the allotees, and the amount, if any, paid or due and payable on each share:

Provided that the company shall not show in such return any shares as having been allotted for cash if cash has not actually been received in respect of such allotment;

(b) in the case of shares (not being bonus shares) allotted as fully or partly paid up otherwise than in cash, produce for the inspection and examination of the Registrar a contract in writing constituting the title of the allottee to the allotment together with any contract of sale, or a contract for services or other consideration in respect of which that allotment was made, such contracts being duly stamped, and file with the Registrar copies verified in the of all such contracts and a return stating the number and nominal amount of shares so allotted the extent to which they are to be treated as paid up, and the consideration for which they have been allotted; and

(c) file with the Registrar—

(i) in the case of bonus shares, a return stating the number and nominal amount of such shares comprised in the allotment and the names, addresses and occupations of the allottees and a copy of the resolution authorising the issue of such shares;

(ii) in the case of issue of shares at a discount a copy of the resolution passed by the company authorising such issue together with a copy of the order of the Company Law Board sanctioning the issue and where the maximum rate of discount exceeds ten per cent, a copy of the orders of the Central Government permitting the issue at the higher percentage.

(2) Where a contract such as is mentioned in clause (b) of sub-section (1) is not reduced to writing, the company shall, within thirty days after the allotment, file with the Registrar the prescribed particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing; and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 , and the Registrar may, as a condition of filing the particulars, require that the duty payable thereon be adjudicated under section 31 of that Act.

(3) If the Registrar is satisfied that in the circumstances of any particular case the period of thirty days specified in sub-sections (1) and (2) for compliance with the requirements of this section [is or was inadequate, he may on application made in that behalf by the company, whether before or after the expiry of the said period, extend that period as he thinks fit]; and if he does so, the provisions of sub-sections (1) and (2) shall have effect in that particular case as if for the said period of [thirty days] the extended period allowed by the Registrar were substituted.

STEPS INVOLVED IN ALLOTMENT OF SHARES FOR CONSIDERATION OTHERWISE THAN IN CASH

SPECIMEN OF BOARD RESOLUTIONS