rules for issuing shares at discount
Answers
When Shares are issued at a price lower than their face value, they are said to have been issued at a discount. For example, if a share of Rs 100 is issued at Rs 95, then Rs 5 (i.e. Rs 100—95) is the amount of discount. It is a loss to the company. It should be noted that the issue of share below the market price but above face value is not termed as ‘Issue of Share at Discount’ Issue of Share at Discount is always below the nominal value of shares. It is debited to separate account called ‘Discount on Issue of Share’ Account.
Conditions to Issue Share at Discount:
Shares can be issued at discount subject to the following conditions:
(a) The shares must belong to a class already issued.
(b) Discount rate should not be more than 10%.
(c) One year must have passed since the date at which the company was allowed to commence business.
(d) The issue of such shares must take place within two months after the date of court’s sanction or within such extended time as the court may allow.
(e) The issue must be authorised by a resolution passed by the company in general meeting and sanctioned by the Company Law Board.