Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: Central Excise rule to resale the machines to a new company :: VAT Audit :: cpt :: due date for vat payment :: TDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: ACCOUNTING STANDARDS :: empanelment :: form 3cd :: articles on VAT and GST in India :: list of goods taxed at 4% :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4%
 
 
News Headlines »
 Integrated Goods and Services Tax (IGST) Rules, 2017 (As on 15.11.2017)
 Central Goods and Services Tax (CGST) Rules,2017 (As on 15.11.2017)
  101st Constitution Amendment Act, 2016
 Pr. Commissioner Of Income Tax-6 Vs. Mccain Foods India Pvt. Ltd.
 Section 10 of the Income-tax Act, 1961
 Income tax returns filing: No tax on gift received from relatives in form of cash
 Income tax returns (ITR): Here is why you need to pay higher tax on other incomes
 GST Update On Issuance Of Debit Notes And Credit Notes
 How Mutual Fund Investments Can Help Save Income Tax
 Income tax returns (ITR) filing: Why small service providers need to get this benefit
 How NRIs can avoid tax troubles

Don't brook any exception to rights
April, 19th 2007
The pre-1960 position should be restored, as that alone will make the pre-emptive right of shareholders sacrosanct.

The universal experience is if a law provides for any exception, the exception soon becomes the norm.

This is increasingly becoming the case with Section 81 of the Companies Act, 1956, which when enacted sought to protect the existing shareholders' stakes by mandating offer of additional shares to them as a matter of right whenever a company sought to increase its capital.

The idea underpinning this mandate was a member should be allowed to be a 26 per cent shareholder at all times if he was the 26 per cent shareholder when he became a member.

It is perfectly all right for a member to spurn this right but the first right of rejection ought to be given to him not only to protect his control over the company which is the popular belief but to safeguard his economic rights as well.

But Parliament, for some inexplicable reasons, supplied the escape route in 1960 by allowing dilution, indeed negation, of this valuable right with 75 per cent majority or even with a simple majority.

The result is dwindling of rights issue with a concomitant increase in private placements, especially through the QIP (Qualified Institutional Placement) route and preferential allotments.

That subscribers to private placements, especially in a QIP, as well as subscribers in preferential allotments shell out what in SEBI's perception is a fair price is no consolation to the shareholders thus marginalised, principally because any increase in share capital has the potential to dilute both in terms of earnings per share and value of the share in the market.

Moreover, had a rights issue been made, all the existing shareholders would have got the right to subscribe to the additional shares on offer strictly in proportion to their existing holdings and those not interested could have en-cashed the offer by renouncing their rights for the right price.

Both the QIP and private placement mechanisms have given minority shareholders the short shrift, by denying them compensation for the dilution in their wealth.

Parliament should, therefore, go back to the pre-1960 position; that alone would make the pre-emptive right of shareholders sacrosanct. Anyone wanting to bypass the shareholders should not be allowed to do so easily he will have to compensate them first before he enters, or beefs up his stakes in, the company.

The one wanting to beef up his control ideally should use the creeping acquisition route, which any day is fairer than the private placement route because the former is done in the market at the prevailing market price without diluting the net worth or earnings per share of the company.

And if mobilising additional capital is the purpose, then those using the private placement route must be made to buy the rights of the shareholders wanting to renounce their entitlements.

That such exercise would be more time consuming and expensive is no ground for usurping the rights of the shareholders unable to withstand the onslaught of the majority and acquiesce rather tamely, willy-nilly.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - About Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions