Payment of underwriting commission - allotment of shares, Business Law and Ethics

Payment of Underwriting Commission:

A "commission" is defined by Osborn's Concise Law Dictionary as, inter alia "an agent's remuneration". Therefore purposes of company law, it denotes the amount of money paid by a company to a person "in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, meant for any shares in the company there or procuring may or agreeing just to procure subscriptions, where absolute or conditional, intended for any shares in the company"

Section 55 (1) of the Act allows a company to pay the commission if:-

a) the payment is authorized by the company's articles; and

b) the commission paid or agreed to be paid does not exceed 10% of the price at which the shares are issued or the amount or rate authorized by the articles, moreover is the less; and

c) furthermore the amount or rate per cent of the commission paid or agreed to be paid is -

i) in the case of shares offered to the public for subscribption, disclosed in the prospectus; or

ii) in the case of shares not offered to the public for subscription and disclosed in the statement in lieu of prospectus, or  may in Form No.225 signed by all the directors or their agents authorized in writing; and

d) the number of shares which it has been agreed to subscribe absolutely is disclosed in manner aforesaid.

Section 55 (2) provides that, except as provided by subsection (1), no company shall apply any of its shares or capital money, either directly or indirectly, in payment of any commission, discount or allowance to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, or procuring or agreeing to procure subscriptions, absolute or conditional, for any shares in the company, whether the shares or money be applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

Posted Date: 1/12/2013 4:12:13 AM | Location : United States







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