Page 130 - DCOM106_COMPANY_LAW

Unit 9: Share and Share Capital

It is to be remembered, however, that as and when the private company converts itself into a Notes
public company, it will have to alter its capital structure and retain only equity share capital and
preference share capital (including CCPs), if any.

9.2.9 Non-voting Shares

‘Non-voting shares’ as the term suggests, are shares which carry no voting rights. These are
contemplated as altogether a different class of shares which may carry additional dividends in
lieu of the voting rights. The Companies (Amendment) Act, 2000 provided for issue of such type
of equity shares under s.86.

9.2.10 Sweat Equity Shares

The Companies (Amendment) Act, 1999, allowed issue of sweat equity shares subject to fulfillment
of certain conditions. A new Section - 79A was inserted for this purpose. The provisions are:
Notwithstanding anything contained in s.79, a company may issue sweat equity shares of a
class of shares already issued if the following conditions are satisfied: (a) the issue of sweat
equity shares is authorised by a special resolution passed by the company in the general meeting;
(b) the resolution specifies the number of shares, current market price, consideration, if any, and
the class or classes of directors or employees to whom such equity shares are to be issued; (c) at
least one year has, at the date of the issue, elapsed since the date on which the company was
entitled to commence business; (d) the sweat equity shares of a company whose equity shares
are listed on a recognised stock exchange are issued in accordance with the regulations of SEBI.
In case of a company whose shares are not listed on any recognised stock exchange, the sweat
equity shares may be issued in accordance with the guidelines as may be prescribed. For purposes
of this section, the expression ‘a company’ means company incorporated, formed and registered
under this Act and includes its subsidiary company incorporated in a country outside India.
The expression “sweat equity shares” means equity shares issued by the company to employees
or directors at a discount or for consideration other than cash for providing know-how or
making available rights in the nature of intellectual property rights or value additions, by
whatever name called.

However, all the limitations, restrictions and provisions relating to equity shares shall be
applicable to such sweat equity shares.

9.2.11 Bonus Shares

A company may, if the articles so provide, capitalise profits by issuing fully paid-up shares to
the members thereby transferring, the sums capitalised from the profit and loss account or
Reserve Account to the Share Capital [s.205 (3)]. Such shares are known as bonus shares and are
issued to the existing members of the company free of charge.
The issue of bonus shares is regulated, not only by the Companies Act, 1956 but also by the
guidelines issued by SEBI in this regard.
SEBI guidelines for the issue of Bonus shares, 2000 provide as follows:
No bonus issue shall be made within 12 months of any public/right issue.
The bonus issue shall only be made out of free reserves built out of the genuine profits or
share premium collected in cash only.
The reserves created by revaluation of fixed assets cannot be capitalised.

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