Checklist for NBFC's Registration

Reserve bank of India has published circular no.319 dated on December 2012 issued Checklist for NBFCs, Non Banking Financial Company-Micro Finance Institutions (NBFC-MFIs), Non Banking Financial Company-Factoring Institutions (NBFC-Factors) and Core Investment Companies (CICs).

with reference to the Application for seeking Certificate of Registration from the Reserve Bank and the list of documents mentioned therein that is required to be submitted .

Click below for complete details of the circular

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7737&Mode=0

Avoiding Common Errors in XBRL Financial Statements

“Tagging” of financial information by using eXtensible Business Reporting Language, an accounting specific mark-up language creates XBRL financial statements which can be stored in a financial database such as MCA-21. XBRL tagging process converts the financial information contained in document in PDF, Word or Excel format to a document or file with electronic codes which makes the document computer readable as well as searchable. Once the tagged financial statements are stored in a financial database like MCA-21, not only the financial data in those XBRL financial statements can be compared or analysed by use of computer systems but investors, investment analysts or other users can also download it and carry out comparison and analysis more quickly and efficiently than with data stored in traditional formats such as PDF.

Many people have a misconception that tagging of financial information/data in XBRL is similar to converting a Word document into PDF format and that tagged financial information/data is as accurate as the underlying information/data in the source documents. This is an inappropriate analogy, because the process of tagging financial information involves judgment of the person creating XBRL financial statements and there is a potential for intentional or unintentional errors in the XBRL documents which could result in inaccurate, incomplete or misleading information. This is a problem because it is the XBRL tagged data which not only will be used by the regulators e.g. Ministry of Corporate Affairs, for comparison & analysis purpose but will also be used by investors, investment analysts etc. Therefore, completeness, accuracy and consistency of XBRL tagged data is of paramount importance.

As with any new technology, XBRL, a new financial reporting technology also brings new risks. XBRL can’t be read by the human eye. The data in XBRL is filtered through rendering applications or viewers to visually present tagged data. Companies can easily underestimate the challenges posed by XBRL and make mistakes along the way. This article describes common errors appearing in XBRL financial statements filed at MCA-21 and how these can be prevented. Practitioners can use this information to get an insight into the challenges of XBRL Instance creation and providing assurance over XBRL financial statements being filed at MCA-21.

To gain a better insight into the challenges faced by the companies in XBRL filings, we examined the XBRL financial statements of a few listed Companies on a test check basis. As a part of this initiative, we downloaded Form 23AC-XBRL & Form 23ACA-XBRL of the Companies from MCA-21 and detached XBRL financial statements attached to these forms and then compared XBRL financial statements rendered by MCA Validation Tool with the financial statements in traditional format, tracing the errors to the XBRL documents containing the computer code.

Completeness Errors

The Company’s XBRL financial statements are required to fairly present the audited financial statements in traditional format. Therefore, all information and data that is contained in the audited financial statements or additional information required to be reported under the scope of tagging defined by Ministry of Corporate Affairs needs to be formatted in XBRL financial statements.

Examples

Some examples of lack of completeness are: (i) Financial information/data of all subsidiaries not formatted in XBRL financial statements. (ii) Financial information/ data of all related party transactions not formatted in XBRL financial statements. (iii) Parenthetical information, for example tax deducted at source on rent, not tagged in XBRL financial statements. (iv) Detailed Tagging of Notes to Accounts wherever required, if not done also falls under completeness error. (v) Not tagging complete “Cash Flow Statement.” (vi) Not tagging the “Foot notes” in financial statements. “Foot Notes” in financial statements provide additional information which helps in having a better understanding of financial information. The absence of “Foot Notes” in financial statements can not only make the task of understanding the financial information difficult, but user could also reach erroneous conclusions.

Solution

A careful tracing of all financial information/data from source documents to rendered XBRL financial statements can detect many such errors. However, this cannot detect all completeness errors because there is some information/data which is required to be formatted in XBRL financial statements, but the same is not reported in traditional financial statements.

Accuracy Errors

Accuracy of numerical data including amounts, signs, reporting periods and units of measurements is critical for the reliability of data in XBRL financial statements. Accuracy errors, though less common than other type of errors, are more serious in nature because the erroneous data not only distorts the financial statements but is also not suitable for downloading in software for comparison and analysis purpose. In a closed taxonomy environment, XBRL Instance documents cannot truly present the audited financial statements, because many times reporting entity may be required to tag a line item in the financial statements with the residuary tag or club two or more line items together. Although, this doesn’t affect the mathematical accuracy of the financial statements, the data may not be suitable for comparison and analysis purposes.

Example

Data entry errors in reporting amount of Profit & Loss Account under the group heading “Reserves & Surplus” and “Loans & Advances” in the Balance Sheet. Duty Drawback”, “Export Incentive” “Other Claim Receivable” all clubbed together and tagged with “Other Receivables”.

Solution

A careful tracing of all financial statement data to the rendered XBRL financial statements can detect errors in values. However, attribute accuracy needs to be checked by verifying all contextual information. A foot note can be added in XBRL financial statements which can provide a break-up of all line items clubbed and mapped with one taxonomy element or with the residuary tag.

Mapping Errors

Mapping is the process of selecting the right element in Indian GAAP Taxonomy for each line item in the financial statement. Mapping errors can result in misleading information and the user of data could reach to an erroneous conclusion.

Examples

“Loss on Sale of Fixed Assets” tagged with “Loss on Sale of Long Term Investments” although a tag “Loss on Sale of Fixed Assets” is available in the taxonomy. “Interest Accrued but not due on Fixed Deposit” tagged with “Other Cash Bank Balance”. Another example of mapping error is “Deferred Tax Liability (Net)” tagged with “Net Deferred Tax Assets” with a negative sign or vice versa. Although, it doesn’t create any mismatch in the assets & liabilities, it distorts the view of the Balance Sheet.

Solution

Although good XBRL Tools have an in-built feature for searching taxonomy element which can assist in mapping, the importance of judgment involved in the process can’t be undermined. A precise understanding of the Company’s financial statements and of Indian GAAP Taxonomy is required to ensure the correct mapping of line items in financial statements with taxonomy elements.

Validation Errors

The final step in preparing XBRL financial statements for submission to MCA-21 involves:-

(i) Validation Test and

(ii) Pre-scrutiny Test

MCA Validation Tool checks and identifies most, but not all, errors. For example, it does not check the financial information/data in ‘Block Tagging’. It verifies the mathematical accuracy and mandatory information/data in XBRL financial statements.

Pre-scrutiny Test conducts server side validation of the data in XBRL financial statements. An XBRL financial statement must pass the “Validation Test” before the “Pre-scrutiny Test” can be conducted.

Examples

Corporate Identity Number (CIN) of an Associate entity not provided in XBRL financial statements. Another example of validation error is “Basis of Presentation of Accounts” not tagged.

Solution

Validation Test on XBRL financial statements should be conducted on the latest available MCA Validation Tool. In case the validation test throws any errors, the same should be removed before uploading at MCA-21. After the XBRL Instance passes the validation test, Pre-scrutiny Test should be conducted and if there are any errors, the same should be removed before uploading of XBRL financial statements at MCA-21.

Rendering Errors

'Rendering’ is a necessary evil. Tagged data needs to be rendered in order to see it. This puts undue focus on presentation vis-à-vis MCA compliant XBRL and use for financial analysis. This is contrary to the original purpose of XBRL. Many filers have noticed during the last filing year that XBRL rendering has not been as accurate as they would prefer it to be. We tend to think of financial reporting in a visual way – in a way we can view it. That is the old way of thinking about financial reporting. “Tagging” of financial statements provide a choice to the users to grab the entire financial statement or individual values in isolation.

Examples

Financial information/data in “Block Tagging” is not properly rendered making the information illegible e.g. information/ data in foreign currency transactions in Notes to Accounts. Another example of rendering error is of certain foot notes attached to the values which are visible in XBRL Viewer but not rendered in the PDF file.

Solution

Rendering errors are mainly related to XBRL software used in generating XBRL financial statements and vendors of software need to look into this aspect. Rendering engine also needs improvement to properly render the information in XBRL Viewer as well as in PDF files. However, the preparer can also improve the formatting of information/data in XBRL financial statements.

Conclusion

It is of prime importance for companies to be aware of these potential errors, whether their XBRL financial statements are prepared in-house or prepared by a third party service provider. There is a legal liability attached to XBRL mandate for companies and its officers in default for submission of inaccurate or false data in XBRL financial statements. There is also a provision for disciplinary complaint against the practitioners to the professional bodies for deficiency in certification of XBRL financial statements. The deficiency in XBRL financial statements could invite avoidable litigation and adversely affect company’s goodwill

Foreign Direct Investment by citizen or entity Incorporated in Pakistan

The Reserve bank of India has issued a circular on 22 August, 2012 regarding the Foreign direct investment(FDI) by citizen or entity incorporated in Pakistan.

Previously FDI is not allowed for citizen of Pakistan or Company incorporated in the Pakistan but RBI in a view of Globalisation has given investment entry though Approval route of the Foreign Exchange management Act, 1999 (FEMA).

 i.e a person who is a citizen of Pakistan or a entity incorporated in Pakistan may, with the prior approval of the Foreign Investment Promotion Board(FIPB) of the Government of India, purchase shares and convertible debentures of an Indian company under Foreign Direct Investment Scheme.

However receiving foreign direct investment is not permitted in the prohibited sectors, shall not engage in sectors / activities pertaining to defence, space and atomic energy and sectors / activities prohibited for foreign investment.

HERE YOU CAN FIND THE RBI CIRCULAR:

http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7520&Mode=0

Amendment in Rationalisation of Form Overseas Direct Investment(ODI)

The Reserve Bank of India on August 21st, 2012 has issued a circular by revising the ODI forms for Indian entities making in investments in aboard.

An Indian party is required to submit to the Reserve bank of India(Regional office where company registered office is situate) through the Authorised Dealer every year within 60 days from date  of expiry of the statutory period of audited accounts  of the Joint venture (JV) / Wholly Owned Subsidiary (WOS) outside India, an Annual peromance report (APR) in Form ODI Part III in respect of each JV or WOS set up or acquired by the Indian party.

Further, an Indian party is allowed to undertake overseas direct investments under general permission route (Automatic Route) subject to compliance to the Regulation 6  or Regulation 7 of the notification. as per Regulation 6(2) (iv) requires that the India party has to submit the APR in respect of all its overseas investments  in the format given in part III of the Form ODI.

The Following items in section 'E'  and 'F' of form ODI part I, to be submitted by every Indian party in terms of Regulation 6(2) (vi) of the Notification, while undertaking ODI transactions

a) In Section 'E' after item (c), item (d) wherever applicable, the Annual permanence Report (APR), as required in terms of Regulations 15 iii of the notification no.FEMA 120/ RB-2004 dated July, 2004 , as amended from  time to time in respect of all the existing JV or WOS of the Indian party has submitted.

b)  In Section 'F' , after item (v) a clause "Further , certified that, wherever applicable, the Annual performance Report, as required in terms of Regulation 15(iii) of the Notification ibid, in respect of all the existing JV or WOS of the Indian party has been submitted."

 THE REVISED ODI FORMS ARE IN THE  BELOW RBI CIRCULAR: 

RBI/2012-13/171 A.P(DIR Series) circular No.15

http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7518&Mode=0

Certificate of Incorporation

The Certificate of Incorporation is actually a Simple Doucment which contains the date of registration ,Name of the company incorporated and also where the company was incorporated.The Registrar of Companies in India  is the responsible for issuing the Certificate of Incorporation to Companies.Usually it takes about 2-3 days after submitting the Memorandum and Articles of Association of the Company along with the other documents required for incorporation  with the Registrar of Companies .If the Registrar of Companies  satisfy that the submitted documents has Complied  with the procedures and provisions under the Companies Act,1956 and other Statutory Legislations for the time being in force, then the Registrar of  Companies will issue the Certiifcate of Incorporation.After issuing of Certificate of Incorporation only, the Company will be considered as Legal Entity and  register itself with the other statutory authorities according to the nature of business.Without the Certificate of Incorporation, A  company could not able to open a Bank Account and register with VAT, PAN(Permanent Account Number) & TAN (Tax Account Number) for deducting TDS.For applying of the above facilities, a company should handover the copy of Certificate of Incorporation with the concerned authorities.(e.g. for applying of Importer-Exporter Code,Service Tax ,Central Excise & Customs Act , Copy of Certificate of Incorporation is mandatory).

As per Section 35 of the Companies Act,1956 "A Certificate of Incorporation given by the Registrar in respect of any association shall be conclusive evidence that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, and that the association is a company authorised to be registered and duly registered under this act.".

When ever company changes the name of the company during the course of the business  and company has shifted its registered office from one state to other state then Registrar of the companies will issue fresh Certificate of Incorporation with effect to the changes.

So the Certificate of Incorporation is the primary document of the Company and it is very essential to keep safe and preserve it permanently.

When to conduct the Annual General Meeting

As per Section 166 of the Companies Act,1956 Every Company, which is Public or Private, limited by Shares or Guarantee, with or without share capital or Unlimited Company is required to be conduct Annual General Meeting once a year.Every Company must in each year hold an Annual General Meeting not more than fifteen months from the date of Last  annual general meeting of a company.No  approval from regulatory authority is required for hold such Meeting.

As per Section 210 (3) (b) of the Companies Act,1956  everry company is required to hold its subsequent Annual General Meeting within six months from the end of the Financial year.

While reading Sections 166 and 210(3)(b) of the Companies Act,1956 there seems to be some contradictions between the provisions.If the Company follows section 166 and conducts Annual General Meeting within 15 months from the end of the Last Annual General Meeting( taking into consideration of Three Months extended time  given by Registrar of Companies),there could be non-compliance of Section 210(3)(b), for not holding the Annual General Meeting within Six Months from the end of the Financial year.

To overcome the non-compliance situation, the Department of Company Affairs (Now Ministry of Corporate Affairs) has advised that the Annual General Meeting of the Company to be held earlier of the following dates : vide its Circular No.8/45(166)64-PR dated 12-01-1965:

-Six Months from the date of Close of the Financial year.(Section 210(3)(b)

-Within 15 Months from the Last Annual General Meeting.(Section 166(1)

- Last Date of Next Financial year.

Therefore in my opinion, a company can convene a Annual General Meeting within the Periods advised by the Ministry of Corporate Affairs to avoid the Penalty and Contravention of the Sections 166 and 210 of the Companies Act,1956.

Appointment of First Auditors

Appointment of Auditors in a company is a vital part in the running of a company. Without Auditors, we could not able to get our accounts audited and filed with Registrar of companies as per the compliance of Section 220 of the Companies Act,1956.

O.K.Let's move to our topic.

As per Section 224(5), the first Auditor or Auditors of a company shall be appointed by the Board of Directors by passing a Board resolution within one month of the date of Incorporation of the Company; and the auditor or auditors so appointed shall hold office until the conclusion of the First Annual General Meeting.

If the Board of Directors fail to appoint the Auditors within one month,they have to appoint the Auditors in the company General Meeting.There is notneed to file Form 23B for the appointemnt of First Auditor.

The Appointed First Auditor shall not suffer any disqualifications Covered U/s.226(3) of the Companies Act,1956  and the Auditor or Auditors so appointed shall hold office until the conclusion of the First Annual General Meeting.

MEMBERSHIP OF THE COMPANY

A Company is composed of members,though it has its own entity distinct from members.The Members of a company are the persons who,for the time being,constitute the company, as a corporate entity.


According to section 41 of the Companies Act,1956 defines who are the members as follows:

(1) The Subscribers of the memorandum of a company shall be deemed to have agreed to become members of the Company, and on registration, shall be entered as members in its register of members;
(2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members shall, be a member of the company;
(3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of a depository shall be deemed to be a member of the concerned company

In Case of a company limited by shares, the shareholders are the members.Generally speaking, every shareholder is a member and every member is a shareholder.But there is an exception to this statement,a person may be a holder of shares by transfer but would not become its member until the transfer is registered in the books of the company in his favour and his name is entered in the register of members.

Who can become a Member?

In Addition to an Individual, the following may also become a Member of the company

(i) A Company -it must have powers in MOA & AOA to make investments in other Body Corporates

(ii) A registered Co-operative Society

(iii) A Non-resident Indian- No shares can be  issued or transferred to him without the General or Special Approval of Reserve Bank of India and he cannot be admitted as Member of the Indian company without the General or Special Permission of the Reserve Bank of India.

(iv) Minor-Minor is incapable to enter into the contract for being a Member but the Guardian of the Minor could apply for the issue of shares on behalf of the Minor  and the company can allot shares to the guardian.When the minor attains the age of majority,he becomes entitled for the dividend and other benefits of the shareholder.

(v) HUF : Hindu Undivided Family is represented by its Karta.In case of HUF,the shares can be allotted to the name of the Karta in HUF.

(vi) Registered Trade Unions

(vii) Joint Shareholders


Who cannot become a Member?
1.Partnership Firm

2.Legal Representative

3.Pawnee

4.Public Office

5.Membership by a Subsidiary Company to its Holding Company


CESSATION OF MEMBERSHIP:

A person may cease to be a member on the following grounds:

(i) on surrender of shares

(ii) on transfer of shares

(iii) on Buyback of shares

(iv) on death of member

(v) By rescission  of contract of Membership on grounds of misrepresentation or mistake.

(vi) on forfeiture of shares

(vii) on bankrupcty of member/

ALTERNATE DIRECTOR

The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the Company in general meeting,appoint an alternate director, in accordance with Section 313 of the Companies Act,1956 to act for a director during his absence for  a period of not less than three months from the state in which meetings of the Board are ordinarily held.

An alternate Director occupies the position of director and even though he is called an alternate director, he is a director and performs same duties and is subject to the same liabilities as of any director.However, in calculating for the purposes of number of companies in which he is a director, a company in which he is an alternate director shall not be included as per section 278(1)(d).An Alternate Director may be appointed as a Managing Director or Whole -Time Director.

An alternate Director shall not hold office as such for a period longer than that 'permissible' to the original director in whose place he has been appointed and shall vacate office as and when the original director returns to the state in which meetings of the Board are ordinarily held as per Section 313(2) of the Companies Act,1956.

If an alternate Director  appointed as Managing or Whole Time Director of the Company, he has to be  regularized  as Director by the shareholders in the General Meeting and then only his appointment of Managing or Whole-Time Director will be valid and otherwise his appointment  will be void.

Writs of Constitution of India

Writs - Provisions in Indian Constitution

 The Indian Constitution empowers the Supreme Court to issue writs for enforcement of any of the fundamental rights conferred by Part III of Indian Constitution under Article 32. Thus the power to issue writs is primarily a provision made to make available the Right to Constitutional Remedies to every citizen. The Right to Constitutional Remedies, as we know, is a guarantor of all other fundamental rights available to the people of India.In addition to the above, the Constitution also provides for the Parliament to confer on the Supreme Court power to issue writs, for purposes other than those mentioned above.Similary High Courts in India are also empowered to issue writs for the enforcement of any of the rights conferred by Part III and for any other purpose.

Types of Writs :

There are five types of Writs - Habeas Corpus, Mandamus, Prohibition, Certiorari and Quo warranto.

1.      Habeas Corpus:

"Habeas Corpus" is a Latin term which literally means "you may have the body." The writ is issued to produce a person who has been detained , whether in prison or in private custody, before a court and to release him if such detention is found illegal.

2.      Mandamus:

Mandamus is a Latin word, which means "We Command". Mandamus is an order from the Supreme Court or High Court to a lower court or tribunal or public authority to perform a public or statutory duty. This writ of command is issued by the Supreme Court or High court when any government, court, corporation or any public authority has to do a public duty but fails to do so.

3.      Certiorari:

Literally, Certiorari means to be certified. The writ of certiorari can be issued by the Supreme Court or any High Court for quashing the order already passed by an inferior court, tribunal or quasi judicial authority. There are several conditions necessary for the issue of writ of certiorari

1.      There should be court, tribunal or an officer having legal authority to determine the question with a duty to act judicially.

2.      Such a court, tribunal or officer must have passed an order acting without jurisdiction or in excess of the judicial authority vested by law in such court, tribunal or officer.

3.      The order could also be against the principles of natural justice or the order could contain an error of judgment in appreciating the facts of the case.

4.      Prohibition:

The Writ of prohibition means to forbid or to stop and it is popularly known as 'Stay Order'. This writ is issued when a lower court or a body tries to transgress the limits or powers vested in it. The writ of prohibition is issued by any High Court or the Supreme Court to any inferior court, or quasi judicial body prohibiting the latter from continuing the proceedings in a particular case, where it has no jurisdiction to try. After the issue of this writ, proceedings in the lower court etc. come to a stop.

Difference between Prohibition and Certiorari:

1.      While the writ of prohibition is available during the pendency of proceedings, the writ of certiorari can be resorted to only after the order or decision has been announced.

2.      Both the writs are issued against legal bodies.

5.      The Writ of Quo-Warranto:

The word Quo-Warranto literally means "by what warrants?" or "what is your authority"? It is a writ issued with a view to restrain a person from holding a public office to which he is not entitled. The writ requires the concerned person to explain to the Court by what authority he holds the office. If a person has usurped a public office, the Court may direct him not to carry out any activities in the office or may announce the office to be vacant. Thus High Court may issue a writ of quo-warranto if a person holds an office beyond his retirement age.

Writs in brief

Type of Writ	Meaning of the word	Purpose of issue
Habeas Corpus	You may have the body	To release a person who has been detained unlawfully whether in prison or in private custody.
Mandamus	We Command	To secure the performance of public duties by lower court, tribunal or public authority.
Certiorari	To be certified	To quash the order already passed by an inferior court, tribunal or quasi judicial authority.
Prohibition	-	To prohibit an inferior court from continuing the proceedings in a particular case where it has no jurisdiction to try.
Quo Warranto	What is your authority?	To restrain a person from holding a public office which he is not entitled.

Additional Director

As per section 260 of the Companies Act, 1956, Additional director can be appointed by passing Board Resolution. He will be vacate his directorship in forthcoming Annual General Meeting.

HOLDING AND SUBSIDIARY COMPANIES

Holding  and subsidiary companies are relative terms. A company is holding company of another if the other is its subsidiary.

According to the section 4, a company shall be deemed to be subsidiary of another, if and only if

i)  that other controls the composition of Board of directors ; 

Explanation: Company A(holding company) controls the composition of the board of directors of Company B(subsidiary company). Company A can appoint or remove all or majority of directors of the Company B.

                                                or

ii) where the first mentioned company is any other company, holds more than half in the nominal value of its equity share capital ;

Explanation:Company A(holding company) holds more than 51% of  equity shares(voting power)  of Company B(subsidiary company) or more than 50% of voting powers through preferential shares.

Here any shares held by virtue of the provisions of any debentures of the first mentioned company (company A) or of a trust deed for securing issue of such debentures shall be disregarded.

                                               or

iii) the first mentioned company is a subsidiary of any company which is the other's subsidiary

Explanation: Company B (subsidiary company)  is a subsidiary of company C which is subsidiary of company A, then the company B is also a subsidiary of company A.

RELEVANT SECTIONS: SECTION 4, SECTION 41, SECTION 42.

Business News

Dear Friends,

For the latest business news , information regarding trade, economy, laws, tax and complaints
what to start a business in INDIA.
http://business.gov.in

What Is the procedure for winding up of foreign company?

A foreign company is a company which is incorporated outside India, and having a place of business in India.

Winding up of foreign companies is only limited to the extent of it's assets in India. In respect of assets and business carried outside India, Indian courts have no jurisdiction.

Winding up of a foreign company can only be made through court.

Even if the company had been dissolved or ceased to exist in the country of its incorporation, winding up order in this country can be made.

Even if a foreign company has been wound up according to foreign law, the courts in India still protect the Indian Creditors. The surplus assets, after paying the creditors, should be distributed among the share holders equally in the same proportion, as the assets ---- to the total issued and paid up capital.

Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the ownership of the company and can come from any Source.

 As, for persons claiming to be creditors, their presence, itself is sufficient. It is not required to be shown, that company carried on business operations from any place of business in India.

Difference between the Sweat equity shares and ESOP or ESOS ?

1> Sweat Equity is grant of shares at discount or without monetary considerations whereas Employee Stock  Option Plan (ESOP) / Employee Stock Option Scheme Scheme (ESOS) is grant of option to purchase share at predetermined price given to employees.


2> Sweat Equity can be issued to the promoters of the Company whereas ESOS/ESOP cannot be issued to the promoters or promoter group.


3> Minimum lock in period of 3 years for Sweat Equity whereas no such lock in period for ESOP and lock in period of 1 year for Employee stock purchase scheme (ESPS).

what is participatory note ?

It is an instrument which the overseas investors can purchase from FII's.The underlying assets are indian listed shares.
The SEBI disclosure requirements can be avoided by purchasing participatory note.
This is also called as Pnote.

Can a Private Company issue bonus shares? if so what is the procedure?

Yes Private Company can issue bonus shares by capitalizing the current year profits and accumulated reserves.

Below is the procedure for Bonus issue of shares by Private Company:

1> check the Articles of Association( AOA) of company whether it has clause for capitalization of profits, if AOA does not have alter it by passing special resolution.

2> pass ordinary resolution to issue the bonus shares and specify the no. of shares issues and pro ratio, price at which shares are issued. Resolution should be register with ROC in form-23.

3> conduct board meeting to issue the shares.

4> file return on allotment Form-2 and issue the share certificates with effect to the allotment.

Relevant Sections: Regulation No.96 of TABLE A, 75(2),192,31