issue of shares at premium

[Lijo David]

Hi anyone can help out on below query

A private company want to issue share to new people other than existing share holders by way of private placement. Based on the valuation report the issue price is 223.70.

Is it possible per the law to  issue shares at a rounded figure of 200 to all new people.

[CS V Kartik]

No. If you are issuing shares via private placement, the issue price per share should not be less than the price determined by the registered valuer. However, if you are issuing by way of ESOP or Sweat Equity, then it can be below the price of the registered valuer.

Kartik

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[Lijo David]

Thanks for the reply.if valaution price is 123.20 can i take issue price as 125.I am under standing that as per income tax act maximum price is valuation price.How can fix the price.is at valuation price or just above to comply with companies act 

[CS V Kartik]

I haven't seen anyone doing it. It's always advisable to go by the price of the registered valuer.

Kartik

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[Pankaj Khandelwal]

Hi Kartik,

Though no one can understand the value of the business/company as the management itself and valuer is just external person to judge the price on the basis of defined parameters. By this logic and not having any material in my knowledge to refer, I would like to get more enlightenment on this mandatory part of taking the price as exact as arrived by the valuation report. Just wondering if there is any reference material on that.

Thanks

[CS V Kartik]

Pankaj,

Conducting valuation is a process & involves lot of calculations based on the projections & several other factors. It's a different subject altogether. So it differs from case to case basis. 

The person who's doing valuation can answer you about the same in detail.

Kartik

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[Pankaj Khandelwal]

Exactly, that I wanted to say that the whole valuation process is based on the final judgement of the valuer after taking inputs from the management team of company and the same may not be accepted in total by the management if they find the valuation is not showing the price they perceive for their company in future (and discounting it today). And its their right to get the true value and some time multiple valuer give different valuation on the same inputs.

I am still open to learn from some reference material/judgement due to lack of the same in my library today.

Thanks for replying.

Regards

Pankaj Khandelwal

con...@cspankaj.in

[Itisha Ghorawat]

While in case of a preferential allotment issue of securities at a price lower than the price derived by the report of a registered valuer is specifically prohibited....it is not the case in private placement.

However since section 42 and the rules there under provides that the value of shares must be determined based on the registered valuer's report, if the company wants to issue shares at a price lower than the value as derived by the valuer, it must provide a justification for the same. 

Again it will be highly difficult to provide such a clarification and hence as a general practice to issue securities at the price derived by the registered valuer. If in your case, you can justify such variation in issue price to the satisfaction of the concerned officials, I don't find any restriction in the act or rules thereunder. 

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[Pankaj Khandelwal]

Thanks for your valuable inputs. 

On 30-Aug-2022, at 10:44 PM, Itisha Ghorawat <ghorawa...@gmail.com> wrote:



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[Ramavtar Goyal]

It may be issue in tax Audit refer clause 29 Section 56

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[Itisha Ghorawat]

But that issue arises only if the issue price is more than fair value.

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