Issue is sanctioned by the court - allotment of shares, Business Law and Ethics

Issue is sanctioned by the court - allotment of shares:

Not less than one year has elapsed since the company was entitled to commence business.

This provision obviates the risk of a hasty or premature issue at a discount. The statutory assumption appears to be that, having been in business for at least one year, the company would most likely have published its first balance sheet and declared a dividend which could induce a greater demand for its shares.

 The issue is sanctioned by the court.

Although the grounds upon which the court is to excercise its discretion to sanction or reject the proposed issue are not spelt out, it appears that it would primarily be acting as the creditors' watchdog to protect their interests. This is so because creditors were not represented at the general meeting which passed the resolution authorizing the company to issue the shares at a discount and so the court steps in to protect their interests. If the issue of shares at a discount would adversely affect any creditor, the court would probably not sanction the issue.

The issue is made within one month after the court's sanction.

This provision acknowledges the fact that the stock exchange market is a highly fluid market. If a company's members pass a resolution authorizing an issue at a discount because of the prevailing market conditions the directors must act on the resolution before the market conditions change. The statutory assumption appears to be that the market conditions would have materially changed within one month after the court's confirmation. If the directors were to issue the shares at a discount despite the changed conditions, the issue could not be justified.

Another general meeting should be held to enable the members to reconsider their decision in the context of the changed conditions. However, the directors may ask the court to extend the time for issuing the shares at the prescribed discount if they are of the view, and the court concurs, that the market conditions have not materially changed. The flaw with this provision is that it does not provide a time limit for applying to the court for its sanction

Posted Date: 1/12/2013 3:20:06 AM | Location : United States







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