Section 60 of Companies Act 2013: Publication of Share Capital

In business terms, share capital refers to the money raised by issuing shares to shareholders. It is the capital base of a business, essential for both operational and strategic growth. Share capital is the amount of money contributed by investors for shares in the company. Moreover, it represents the interests of stakeholders in equity and serves as an important gauge of the financial structure and solidity of the company. Share capital is also defined and regulated by the Companies Act of 2013 in India for share companies. It forms an essential element on the assets side of a company’s balance sheet, representing the amount of funds committed by the shareholders in lieu of ownership. Share capital may be raised during company incorporation or by later issues, such as public issues, rights issues, or private placements.

There are several types of share capital, each with a particular function and symbolizing the different aspects of the financial obligations of a company and the rights of investors. The key categories are:

1. Authorised Capital: The maximum amount of capital that a company is entitled to issue, as stated in its Memorandum of Association.
2. Issued Capital: That portion of authorised capital which is brought out for sale to investors.
3. Subscribed Capital: The amount of issued capital that has been agreed upon by investors to purchase.
4. Paid-up Capital: The total amount of money brought in by the shareholders for their respective shares.
5. Called up and Uncalled Capital: These are expressions for the part of subscribed capital that has been called for by the company and the portion that is not yet called for.

It is essential for financial experts, businesspersons, and investors to know share capital and its kinds, as it determines ownership structure, financing capability, and legal obligations of a company.

What is Publication of Share Capital?

Share capital disclosure or share capital publication is the practice of reporting or disclosure in documents of record, financial statements, and statutory returns data with regard to a company’s share capital. This is regulated in India by the Companies Act, 2013 and is crucial to enforcing transparency and accountability in corporate governance.

Companies are asked to disclose data on their authorised, issued, subscribed, and paid-up capital in various books of accounts, namely the memorandum of association, annual returns, balance sheet, and other returns to the Registrar of Companies (ROC). Such disclosures enable stakeholders like investors, regulators, creditors, and the general public to take into account the financial health, ownership pattern, and compliance with the statutes of the company.

Apart from that, any alteration in share capital (e.g., addition to authorised capital, allotment of new shares, or variation of shares) will be required to be brought to the notice by means of relevant regulatory filings, e.g., Form SH-7 in the case of alteration in share capital and Form PAS-3 for allotment returns.

In other cases, particularly for listed companies, critical capital information can be made available in prospectuses, advertisements, and other public disclosures. Thus, disclosure of share capital promotes business openness, investor trustworthiness, and regulatory surveillance.

Section 60 of the Companies Act, 2013

Section 60 of the Companies Act, 2013 mandates the registration of prospectuses by such corporations that are going to offer securities to the public. It primarily addresses public corporations for raising funds through a public offering. Prior to issue or issue to the public, the prospectus is to be submitted for registration with the Registrar of Companies (ROC). Section 60 mandates the registration of a prospectus with the Registrar before publication. Moreover, it must be signed by the directors themselves or their agents.

Applicability

1. This regulation governs public companies offering public securities offerings.
2. This does not apply to private placements and rights offerings, which do not entail the use of a prospectus.

Section 60 of the Companies Act of 2013 ensures the protection of investors’ interests by mandating that no public company issue a prospectus without prior registration with the Registrar of Companies. In doing so, it promotes due diligence, lawfulness, and transparency in raising funds from the public, and thereby the integrity of India’s securities market.

Key Requirements and Conditions

1. Conditions for Filing Prospectus: A copy needs to be filed with the Registrar of Companies (ROC) prior to its release. The filing is to be done prior to publication or circulation of the prospectus.
2. Signature Requirement: The prospectus should be signed by all existing and proposed directors. Where a director is not available or cannot sign, their authorised representative can sign on their behalf, if they have the requisite authority.
3. Documents to be Attended: Expert consent (if any) needs to be filed by corporations. Contracts or agreements mentioned in the prospectus have to be furnished. The prospectus must also refer to any related reports, certificates, or documents.
4. Penalties for Failure to Comply: Failure to comply with Section 60 while issuing a prospectus can invite penalties as provided under the Act. Misstatements or misleading statements made in an unregistered prospectus may attract charges of fraud or misrepresentation under Sections 34 and 35 of the Companies Act, 2013.

Consequences of Noncompliance with Section 60

Section 60 of the Companies Act, 2013 mandates a company to submit a duplicate copy of the prospectus to the Registrar of Companies (ROC) prior to its release in the public domain. The provision also mandates signing the prospectus by all directors or potential directors. Failure to abide by this clause may attract heavy legal and criminal consequences, especially if the prospectus is employed to raise funds from the public.

A default under Section 60 of the Companies Act, 2013, is a serious offense and may lead to civil, criminal, and regulatory penalties. Not only does it risk the genuineness of a public issue, but it also jeopardizes the company and its directors with suits filed against them, penalties, and even imprisonment. Therefore, businesses need to ensure strict adherence to the requirement of listing the prospectus with the ROC prior to its offer for sale to the public.

1. Invalid Issuance of Prospectus

If a company issues a prospectus without pre-filing it with the ROC, the issue can be invalidated or illegalised. This dilutes the validity of the entire public issue and can even damage the enforceability of contracts entered into on the strength of the prospectus.

2. Penalties under the Companies Act of 2013

Section 60 does not specifically enumerate penalties, but non-compliance can result in liabilities under corresponding provisions, particularly:

1. Criminal Liability for Misstatements (Section 34): Directors and promoters could face criminal prosecution should a prospectus that is not filed carry misleading or false information. Penalties can consist of imprisonment for a period of up to 10 years and a penalty of at least ₹1 lakh, which can go up to ₹10 lakh.
2. Civil Liability for Misstatements (Section 35): Subscribers to securities on the basis of a false or unregistered prospectus can file compensation claims. Directors, promoters, and concerned professionals can be held individually liable for any loss caused.
3. Fraud (Section 447): If non-compliance is considered fraudulent (e.g., by deliberate concealment or deception), the parties involved could face penalties under Section 447. These can be imprisonment for up to 10 years and fines of up to three times the value involved in the fraud.

3. Regulatory Implications

SEBI may act against listed companies or those intending to list if they go against public issue requirements.• The ROC can initiate an investigation or prosecution under the Companies Act.

4. Negative Impact on Reputation and Investor Confidence

Failure to comply with Section 60 may result in loss of market reputation, negatively impacting investor confidence, future fund-raising efforts, and possible withdrawal of investments.

5. Penalties for Directors and Officers

Directors upon conviction can face personal liability and removal from office under Section 164. They can also face class action suits by shareholders for deceptive behavior.

Why is the Publication of Share Capital Mandatory?

The Companies Act, 2013, Section 60, makes it obligatory on the part of companies to publish their authorised, subscribed, and paid up share capital in official documents such as the memorandum, articles of association, prospectus, and a few communications. This is in line with many legal, fiscal, and moral reasons that play a significant role in corporate administration and the safety of investors.

1. Encourages Transparency – Obligates companies to truthfully present share capital and prospectus information prior to undertaking public offers.
2. Safeguards Investors – Provides that prospectuses are approved and lodged with the Registrar of Companies (ROC), enabling investors to make informed choices.
3. Minimises Misrepresentation – Minimises the chances of false or deceptive statements in public issues.
4. Maintains Legal Compliance – Filing the prospectus ensures compliance with legal requirements.
5. Ties Directors Personally – Directors need to sign the prospectus and may be made personally liable for its contents.
6. Facilitates Regulatory Regulation – Allows ROC to examine and monitor public offers, thus encouraging corporate governance.
7. Boosts Confidence in the Market – Boosts the confidence, trust, and assurance of investors’, stakeholders’, and institutions’ confidence.
8. Offers Legal Recourse – Creates a legal forum for action where fraud, misrepresentation or omissions in the prospectus have occurred.

Conclusion

Section 60 of the Companies Act, 2013 requires companies to bring the information into the open and protect the investors by making registration of the prospectus with the Registrar of Companies obligatory. This requirement makes it obligatory for companies to provide authentic and verifiable information about their share capital before inviting public investment. This requirement dissuades fraud and misrepresentation, and it also holds the directors responsible for what they write in the prospectus.

By providing compliance on the statutory level, Section 60 leads to a stronger, more transparent, and investor-focused corporate culture, hence reinforcing the public-offering confidence. Disclosure of share capital requirements is central to providing corporate transparency as it protects the investors’ interest, maintains market integrity, makes it easy for the regulators to oversee, and leads to ethical corporate conduct. Therefore, the need is crucial in building trust and accountability within the corporate environment.