What are the required guidelines for issuing fresh share capital ?

The Ministry of Finance (Deptt. of Economic Affairs), Office of the Controller of Capital Issues, issued a press note on 14th May 1975 prescribing the guidelines for issue of fresh share capital.

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Under the Capital Issues (Control) Act, 1947 all companies whose issue of share Capital is not specifically excluded by the Capital Issues (Exemption) Order,1969, are required to obtain the approval of the Controller of Capital Issues in the form of a letter of acknowledge­ment or a consent. The guidelines for the examination of Issue of Share Capital other than Bonus Shares are indicated below for the guidance of such companies.

17 essential steps for for issuing fresh share capital

1. All applications should be submitted to the Controller of Capital Issues in the prescribed form duly accompanied by a Treasury Challan for fees payable under the Act,


2. The applications should be accompanied by a true copy of the Industrial License, wherever necessary, or registration with the Direc­tor General, Technical Development, for the project.

3. A realistic estimate of the project cost will be furnished together with the precise scheme of finance. In respect of financial assistance from the financial institutions, copies of their letters indicating their participation in the financing of the capital cost should be forwarded.

4. Where issue of substantial amount is proposed to be made or where listing is a requirement of the financial institutions providing assistance, the company should have the shares issued to the public and listed in one or more recognized Stock Exchanges except in case of listed company where it is proposed to issue as “Right Shares.”

5. Where the issue of equity capital involves an offer for subscrip­tion by the public for the first time, the value of equity capital subs­cribed privately by the promoters, directors and their friends shall not be less than fifteen per cent of the total issued equity capital, if it does not exceed one crore of rupees, twelve-and-a half per cent, if it does not exceed two crores of rupees and ten per cent, if it is in excess of two crores of rupees.


6. Ordinarily issue of shares for consideration other than cash is not permitted. In exceptional cases where the parties desire that shares should be allowed in lieu of the assets transferred, detailed informa­tion in regard to the valuation of such assets together with the copies of necessary valuation reports be furnished.

7. In case of companies registered under the M.R.T.P. Act, they are advised to ensure that the requisite approval under the M.R.T.P. Act has been obtained before making an application to the Controller of Capital Issues.

8. To finance the capital cost of the project, the capital structure should be such that an equity debt ratio of 1 : 2 is considered fair and reasonable. In case of capital intensive industries, a higher equity debt ratio can be considered on merits of such case.

9. An equity preference ratio of 3 : 1 is normally permitted.


10. The rate of dividend on preference shares should be within the ceiling as notified by the Controller of Capital issues from time to time.”

11. No premium is allowed in respect of a new company making its first issue of shares.

12. There should be satisfactory underwriting arrangements in res­pect of new issues and the names of underwriters together with the amounts underwritten should be indicated in the application, except it case of “Right Shares”.

13. No company is expected to make an allotment of shares to non­residents except with the prior approval in writing of the Government of India or of the Reserve Bank of India and a copy of such approval should be attached to the application if the shares are proposed to be allotted to non-residents.

14. If any firm allotment is intended to be given in favour of the public financial institutions, the particulars thereof should be furnished in the application.

15. Any arrangement reached by the company or commitment made prior to the issue of the capital which has a significant impact on the capital, cost estimate or the capital structure of the company, the same may be disclosed along with the application.

16. A certificate duly signed by the Secretary and/or Director of the company stating that the information furnished is complete and correct, be annexed to the application. Similarly a certificate from the Auditors of the company stating that the information in the application has been verified by them and is found to be true and correct to the best of their knowledge and information, be furnished.

17. Before making an application to the Controller of Capital Issues for issue of fresh share capital as ‘rights shares’, companies are further required to give in a letter addressed to the existing shareholders in­formation in sufficient details as to how they propose to utilize the additional moneys that are being raised by the ‘rights issue’ and give some broad ideas of the future earnings after the investment of such additional capital. (This guideline has been added with a view to ena­bling the shareholders to decide well in advance whether they should subscribe or not to the ‘rights issue’).

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