Other ways to make money for shareholders.

The requirement of profitability of shareholders: The choice of shareholders to leave some reserves therefore equates to a new investment for which it has a performance expectation. The company "creating shareholder value" if it reinvests profits to a rate higher than the weighted average cost of capital (WACC).

Conversely, the "Moneybox" company accumulates reserves year after year contribute to increasing excess cash placed in money market rates, currently a zero rate or even negative. The return on equity ratio was therefore progressively closer to the money market rate. This may be the case of the leader shareholder setting that emphasizes the sustainability of its business in return on equity.

The requirement for shareholder dividends compared to a full self-financing (as far as this is feasible!) Has a virtuous effect on the company's management. It forces the manager to invest in projects whose profitability provides ability to repay loans to convince lenders and bankers attracted new investors.

Other ways to make money for shareholders.

Different techniques can make money only to shareholders who so wish:

• The listed groups may repurchase shares over the water in the limit of 10% of their shares. Under IFRS, these actions are negative for the purchase price in equity;

• A company may redeem the shares of a shareholder wishing to opt for canceling, reducing the capital. It is a decision of the extraordinary general meeting (EGM) taken by a majority of 2/3, reducing the capital modifying effect in the statutes.

• Some listed companies offer their shareholders to pay them a share dividend. The number of shares offered in substitution of paid cash dividend is defined relative to the prevailing action reduced by a maximum discount of 10% on average during the last 2. The shareholders thus have the choice of receiving their dividend in shares or in cash.

The dividend payment date
The date of dividend payment date is decided by the AGM traditionally payment is annual. However, more and more groups fractionate payment by installments. For example, a group decided in July 2015 an interim dividend paid in December 2015, under the result of the same year.

Number of Directors in public company

Number of Directors

Every public company (other than a deemed public company) must have at least three directors. Every other company must have at least two directors. Subject to this minimum number of directors, the articles of a company may fix the minimum and maximum number of directors for its board of directors.

Right of company to increase or reduce the number of directors

A company, at a general meeting may, by ordinary resolution, increase or reduce the number of its directors within the limits fixed in that behalf by its articles.

Increase in number of directors to require Government sanction (Sec. 259)

In the case of a public company, or a private company which is a subsidiary of a public company, any increase in the number of its directors, beyond the maximum number of directors permitted by the Articles of the Company as first registered, shall not have any effect unless approved by the Central Government and shall become void if, and in so far as, it is disapproved by that Government.



However, where such permissible maximum is 12 or less, no approval of the Central Government is required provided the increase does not increase the number of directors beyond 12.

How to calculate Diluted Earnings per Share?

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity shares. 

The amount of net profit or loss for the period attributable to equity shareholders should be adjusted, after taking into account any attributable change in tax expense for the period. The number of equity shares should be the aggregate of the weighted average number of equity shares (as per paragraphs 15 and 22 of AS 20) and the weighted average number of equity shares which would be issued on the conversion of all the dilutive potential equity shares into equity shares. Dilutive potential equity shares should be deemed to have been converted into equity shares at the beginning of the period or, if issued later, the date of the issue of the potential equity shares.

An enterprise should assume the exercise of dilutive options and other dilutive potential equity shares of the enterprise. The assumed proceeds from these issues should be considered to have been received from the issue of shares at fair value. The difference between the number of shares issuable and the number of shares that would have been issued at fair value should be treated as an issue of equity shares for no consideration.

When a Company can buy-back its equity shares?

As per section 77A of the Companies Act, 1956 a joint stock company has to fulfill the following conditions to buy-back its own equity shares:

(a) The buy-back is authorised by its articles.
(b) A special resolution∗ has been passed in general meeting of the company authorising the buy-back.
(c) The buy-back does not exceed 25% of the total paid up capital and free reserves of the company. Provided the buy–back must not exceed 25% of its total paid up equity capital in that financial year.
(d) The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back.
(e) All the shares for buy-back are fully paid up.
(f) The buy-back is made out of the free reserves (which include securities premium) or out of the proceeds of a fresh issue of any shares or other specified securities.
(g) The buy-back is completed within 12 months of the passing of the special resolution or a resolution passed by the Board.
(h) The buy-back of the shares listed on any recognised stock exchange is in accordance with the regulations made by the SEBI in this behalf.
(i) Before making such buy-back, a listed company has to file with the Registrar and the SEBI a declaration of solvency in the prescribed form.

What are Sweat Equity Shares? Conditions must be fulfilled to issue Sweat equity shares

The Companies (Amendment) Act, 1999 introduced through section 79A a new type of equity shares called ‘Sweat Equity Shares. 

The expression ‘sweat equity shares’ means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions by whatever name called.

Notwithstanding anything contained in section 79, which deals with the power of a company to issue shares at a discount, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely:-
(i) the issue of sweat equity shares is authorized by a special resolution passed by the company in the general meeting.
(ii) the resolution specifies the number of shares, current market price, the consideration if any, and the class or classes of directors or employees to whom such equity shares are to be issued.
(iii) not less than one year has, at the time of the issue, elapsed since the date on which the company was entitled to commence business.
(iv) the sweat equity shares of company, whose equity shares are listed on a recognized stock exchange, are issued in accordance with the regulations made by the SEBI in this behalf. But in the case of company whose equity shares are not listed on any recognized stock exchange, the sweat equity shares are issued in accordance with the guidelines as may be prescribed.

All the limitations, restrictions and provisions relating to equity shares are applicable to sweat equity shares also.

Payment of Dividend on partly paid up shares

In the case of partly paid-up shares, the dividend is payable either on the nominal, called-up or the paid-up amount of shares, depending on the provisions in this regard that there may be in the articles of the company. In the absence of any such provisions, Table A should be applicable. In such a case the amount of dividend payable will be calculated on the amount paid-up on the shares, and while doing so, the dates on which the amounts were paid must be taken into account. Calls paid in advance do not rank for payment of dividend. 

A company may if so authorised by its articles, pay a dividend in proportion to the amount paid on each share, where a larger amount is paid on some shares than on others (Section 93 of the Companies Act, 1956). But where the articles are silent and Table A has been excluded, the amount of dividend payable will have to be calculated on the nominal amount of shares. 

It should, however, be noted that according to Clause 88 of Table A dividends are to be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof the dividend is paid, but if and so long as nothing is paid upon any of the shares of the company, dividends may be declared and paid according to the nominal amount of the shares.

What are Firm underwriting and Partial underwriting?

In firm underwriting the underwriter agrees to subscribe upto a certain number of shares/debentures irrespective of the nature of public response to issue of securities. He gets these securities even if the issue is fully subscribed or over-subscribed. These securities are taken by the underwriter in addition to his liability for securities not subscribed by the public.

Under partial underwriting along with firm underwriting, unless otherwise agreed, individual underwriter does not get the benefit of firm underwriting in determination of number of shares/debentures to be taken up by him.

‘Firm’ underwriting signifies a definite commitment to take up a specified number of shares irrespective of the number of shares subscribed for by the public. In such a case, unless it has been otherwise agreed, the underwriter’s liability is determined without taking into account the number of shares taken up ‘firm’ by him, i.e. the underwriter is obliged to take up : 

1. the number of shares he has applied for ‘firm’; and
2. the number of shares he is obliged to take up on the basis of the underwriting agreement.

For example, A underwrites 60% of an issue of 10,000 shares of $10 each of XY Co. Ltd. and also applies for 1,000 shares, ‘firm’. The underwriting commission is agreed to at the rate of 2.5 percent. In case there are marked applications for 4,800 shares, he will have to take up 2,200 shares, i.e. 1,000 shares for which he applied ‘firm’ and 1,200 shares to meet his liability of underwriting contract. If, on the other hand, the underwriting contract has provided that an abatement would be allowed in respect of shares taken up ‘firm’, the liability of A in the above mentioned case would only be for 1,200 shares in total.