Issuing shares is one of the most fundamental actions a company can take. Whether you’re starting a new company, merging businesses, or raising funds, share issuance plays a crucial role in defining ownership and control.
Let’s break down what the law says about how and when shares are issued—and what responsibilities come with it.
📌 What Happens at Incorporation?
When you first register your company:
- Every person listed as a shareholder in your incorporation documents must be issued the shares they’re entitled to immediately after registration.
- This is the legal starting point for who owns the company.
✅ Key takeaway: You can’t delay issuing shares after incorporating. It must be done immediately, as part of legally activating ownership.
🔁 What Happens After Amalgamation (Mergers)?
If your company merges (amalgamates) with another:
- The new or continuing company must immediately issue shares to people as set out in the amalgamation agreement.
✅ Key takeaway: The new shareholding structure agreed upon in the merger must be executed without delay, giving each party the shares they’re due.
🏗 How Can a Company Issue New Shares?
Under Section 51, your company’s board of directors has the power to issue new shares, but there are rules:
1. ✅ The Board Decides
The board can issue shares to any person, in any amount, as long as it follows:
- The company’s Articles of Association, and
- Any restrictions under Sections 52 and 53 (e.g., preemptive rights or shareholder approval requirements).
2. 📝 If Shares Have Special Rights or Obligations
If the new shares come with:
- Special rights (like priority dividends, extra votes, or limited transferability), or
- Obligations (such as capital commitments),
Then the board must formally approve the terms of issue, which explain:
- What rights or restrictions come with the shares,
- Any obligations for the shareholder.
3. 📜 Terms Must Align with Articles
The terms of issue must match the company’s articles. If they contradict the articles, they are:
- Invalid and unenforceable,
- Deemed part of the articles, once approved,
- Can only be changed by amending the articles through proper legal procedures (as per Section 15).
📬 Reporting Requirements
After issuing any new shares, the company must notify the Registrar of Companies within 20 working days.
You must submit:
- The number of shares issued,
- The value or consideration received (e.g., cash, property, services),
- The company’s new stated capital (total capital from shares),
- A copy of the terms of issue if special rights or obligations were attached.
🕒 Timing matters — late filing is not only non-compliant, it’s also a legal offence.
⚠️ Penalties for Non-Compliance
If your company doesn’t follow these rules:
- The company itself can be fined up to Rs. 50,000.
- Each officer in default (such as a director or company secretary) can also be fined up to Rs. 50,000 individually.
✅ Key takeaway: Always report share issues on time, and ensure you follow your company’s articles.
💼 Final Thoughts for Business Owners
Issuing shares is more than just giving someone part of your company—it’s a legal process with consequences.
Here’s what you should always ensure:
- You’re following your company’s Articles of Association.
- Any special share rights are clearly documented and legally valid.
- You report every share issue on time to avoid fines or legal complications.
Whether you’re onboarding new investors, expanding ownership, or restructuring after a merger, it’s worth consulting a legal or corporate advisor to make sure every share is issued legally, fairly, and properly recorded.
📢 Need help issuing shares or reviewing your company’s share structure?
Reach out to a trusted legal or corporate service provider to stay compliant and protect your business’s future.
