Section 296 of the Companies Act, 2013
Section 296 of the Companies Act, 2013 – Restrictions on Allotment of Shares and Debentures
Overview:
Section 296 places restrictions on the allotment of shares and debentures by a company during certain periods to protect the interests of existing shareholders and creditors.
Key Provisions:
Restrictions on Allotment:
A company cannot allot any shares or debentures during the period of 7 days immediately preceding:
The date of the meeting at which a resolution is to be proposed for the allotment, or
If no such meeting is held, during the period of 7 days before the allotment.
Purpose:
To prevent misuse of insider information.
To protect shareholders from unfair allotment.
To ensure transparency and fairness in share or debenture issuance.
Exceptions:
The section generally applies to public companies.
Private companies may be exempt unless specified otherwise.
Explanation:
If a company plans to allot shares or debentures and there is a general meeting to approve this, the company cannot allot shares in the 7 days immediately before that meeting. This helps avoid any unfair advantage or insider trading.
Example:
Company XYZ schedules an AGM on July 15 to approve the allotment of new shares. According to Section 296, XYZ cannot allot shares from July 8 to July 15.
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