When an asset is acquired by a company, the payment of asset price can be made by the issue of shares or in cash to the vendor. Moreover, when shares are given against the purchase price, it is known as ‘Issue of shares for consideration other than cash’. In this case, shares are not open to the general public.
Shares for consideration other than cash can be allotted only by way of Preferential Allotment mode as provided under Section 62(1)(c) of the Companies Act 2013, also termed as Private Placement.
It may offer the fully paid equity shares to the vendor for the value of the assets. It can also issue shares to the promoters or the lawyers for rendering services in the formation of the company. It needs to show the ‘shares issued for consideration other than cash’ separately under the heading ‘Share Capital‘.
What is non-cash consideration?
Non-cash considerations can typically be defined as consideration which is received or receivable by the customer which is in a form other than cash.Examples of non-cash considerations typically include: ➢ Shares. ➢ Material, equipment and labor.
When any asset is acquired by a company, the payment of purchase price may be made by the issue of shares or in cash to the vendor. When shares are issued against the purchase price, it is called ‘Issue of shares for consideration other than cash’. In other words cash is not received by the company against such shares.
What is Section 62 of Companies Act 2013?
“The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.”
Issue of Shares for Cash. … They fulfill their requirement by issuing shares and debentures to the public. Moreover, after receiving the certificate of incorporation, they can offer shares to the public under different methods.
Public companies issuing shares for services will have to comply with additional stock exchange rules. For example, the Canadian Securities Exchange recently implemented a policy change requiring a four-month hold period to be applied on securities issued under section 2.24 of NI 45-106.
– Stocks shall not be issued for a consideration less than the par or issued price thereof.
When shares are forfeited, share capital account is debited. Explanation: Share Capital Account represents the liability of the company as it is the amount that is borrowed from the public. Therefore, at the time of forfeiture of shares, it is debited with a called-up amount.