ISSUE OF SHARES AT DISCOUNT

When a company issues a share at a price lower than its nominal or par value, the shares are said to have been issued at a discount. According to sub-section (1) of section 79, if any company proposes to issue any shares at a discount, it can do so only if the conditions stipulated in this section are fulfilled. The said conditions are as follows:

1. The shares to be issued are of a class which has already been issued by the company. Therefore, the first issue of shares of a company cannot be at a discount.

2. The issue is authorised by an ordinary resolution passed by the company at a general meeting.

3. The Company Law Board has sanctioned the issue.

4. The ordinary resolution specifies the maximum rate of a discount at which the shares are to be issued. [Company Law Board shall not sanction a discount of more than ten per cent unless it is of the opinion that a higher percentage of a discount is justified in the special circumstances of the case].

5. The issue is made after one year from the date on which the company became entitled to commence business. [In the case of a private company, the date of incorporation of the company will be taken as the date of commencement of business].

6. The shares are issued within two months of the sanction by Company Law Board or within such extended time as it may allow.