Payment for shares of additional issue of property
The decision to increase the Charter capital by issuing additional shares by subscription may provide for monetary and non-monetary form of payment of such shares. The opportunity set in paragraph 2 of article 34 of the Federal law of 26.12.1995 № 208ФЗ "On joint stock companies" (hereinafter — the Law on joint-stock companies), according to which the payment of additional shares placed by subscription can be effected with money, securities, other things or property rights or other rights having a monetary evaluation.
In this formulation it is worth to pay attention to two points. First, property may be paid only the shares placed by subscription, both open and closed. When increasing the share capital by conversion or distribution of additional shares among the shareholders additional contributions occurs, the increase of the authorized capital at the expense of own funds of the Issuer, which include retained earnings from previous years capital lease obligations and balances special purpose funds.
Secondly, there are types of property that can be paid. It can be securities, but also property and non-property rights having a monetary evaluation. From what is property will be paid additional shares, depends on the implementation of the actions in the procedure, in particular at the stage of placement of shares. For example, the payment for the shares of the additional issue of shares in the authorized capital of the limited liability company will be significantly different from the payment of real estate because the order of transition of the rights on such property and procedure for registration differ.
Overall, including the sequence of major activities, and General and basic requirements, the procedure of additional issue of shares of a single, regardless of the form of payment. However, of course, each of these stages has its own characteristics, and often when you pay for the shares not by monetary funds, the procedure is more complicated. Harder because there are additional steps that you need to produce, respectively, and additional documents that must be submitted to the registration authority; in addition, of course, to the contents of the issue documents have additional requirements.
Some of these features and are the subject of this article. Seems best first to consider features of legal regulation of the procedure, then the features of the procedure and requirements for the preparation of certain documents.
The main legal acts regulating the procedure of state registration of the additional issue of shares, are the Federal law "On securities market" dated 22.04.1996 No. 39-FZ (hereinafter — the Law on securities market), the Law on joint-stock companies, Standards of securities emission and registration of prospectuses of securities, approved by Order of FFMS 25.01.2007 № 07-4/PZ-n (further — Standards of emissions).
These documents are absolutely essential though, because that establish the requirement of any procedure of issue of shares, regardless of the form of payment and other characteristics of the issue. However, if the issue provides for the possibility of payment of the issued shares by monetary funds, in addition to these documents, you must follow the requirements of other regulatory documents, e.g., Federal evaluation standards.
So, clause 3, article 34 of the Law on joint-stock companies establishes that when payment for shares by monetary funds to determine the market value of the property should involve the independent appraiser, the value of monetary valuation of property established by the Board of Directors (Supervisory Board) of the company, cannot be higher than the valuation made by an independent appraiser. This provision is aimed at preventing abuse — inflating the value of the property contributed as payment for additional shares. With this overstatement suffer other shareholders whose shares in the authorized capital eroded and/or worthless.
Despite the fact that the assessment and drafting of the outcome document of the evaluation report — carried out by professional organizations, Federal evaluation standards in the implementation of procedures issue require joint society, because it determines important for the procedure of the issue terms. For example, in clause 26 of section IV of the Federal valuation standard "General valuation concepts, approaches and requirements to assess (FSO No. 1)" (app. By order of the Ministry of economic development of Russia from 20.07.2007, the № 256) States that the total cost of the object of evaluation indicated in the evaluation report may be recommended for the purposes of making transactions with objects of evaluation, if the date of the valuation report before the date of the transaction with object of evaluation was no more than 6 months.
Thus, the preparation of a report on the assessment of the property and entering the property in payment for shares must occur within 6 months. If this period has expired, the assessment needs to be repeated. The evaluation report is one of the mandatory documents submitted for the state registration of the report on additional issue of shares. Accordingly, the violation of the requirements of the current legislation in this part may be grounds for refusal of state registration of such report and the recognition of the securities issue not taken place.
Among the documents regulating the procedure of the issue, but rather relevant to this procedure, it should be noted also the Letter of the FFMS of the Russian Federation dated 30.03.2010 No. 10-VM-03/6623 "to increase the authorized capital stock of the company, the net asset value is less than its Charter capital" and the Order of the Ministry of Finance of Russia No. 10n, FKCB RF No. 03-6/PZ dated 29.01.2003 "On approval of the Procedure for valuation of net assets of joint-stock companies".
Why is it so important these documents?
When deciding to increase the share capital, you must ensure that in accordance with the annual accounting balance sheet compiled according to the last completed financial year before the adoption of the decision to increase the share capital, the net asset value of joint-stock companies amounts to not less than its authorized capital. The procedure for determining the value just installed the above mentioned joint Order of the Ministry of Finance and the FCSM of the Russian Federation.
The law on joint-stock companies sets (item 6 or 11 of article 35), if the net asset value of joint-stock companies amounts to less than its authorized capital, the Corporation will be obligated to the decision to reduce the authorised capital or on liquidation. FFMS of the Russian Federation in the above letter dated 30.03.2010 No. 10-VM-03/6623 explained that in the case when the joint-stock companies there is such a duty, "conditions of issue and circulation, as well as the conditions of issue of shares, which is aimed at increasing the authorized capital of such joint stock companies should be considered as contrary to the legislation of the Russian Federation".
Thus, if at the end of the year the value of net assets below share capital, the share capital increase is impossible.
Not to mention the rules of law that determine the size and procedure of payment of the state fee. Currently, when submitting documents for state registration of issue (additional issue) of securities shall only pay the fee for the state registration of issue (additional issue). The amount of the fee determined by PP. 53 clause 1 of article 333.33 of the Tax code of the Russian Federation and is 0.2 per cent of the nominal amount of the issue (additional issue), but not more than 200 000. In this case, if by results of consideration of documents submitted for the state registration of the additional issue of shares, the decision on refusal, feeding the documents again and will have to pay a fee.
Speaking about the legal regulation and partly about the innovations in legislation, it should also be noted that in accordance with clause 6.1.2 of Standards for the issue of the possibility of payment for additional shares by offsetting monetary claims to a joint stock company may be provided only in the decision to increase the share capital of the company by placing additional shares through closed subscription, providing for the payment for the placed additional shares for cash.
Let's discuss the main provisions of the procedure.
The procedure of issue of additional shares in accordance with applicable law in a generalized form, includes the following steps:
1. The amendments to the articles of Association of provisions on authorized shares (in their absence).
2. The decision on placing of additional actions (the decision to increase
of the share capital).
3. Adoption of the resolution on the additional issue of securities.
4. The state registration of additional issue of shares.
5. The placement of additional shares.
6. Approval of the Report on the results of additional securities issue, state registration of the Report on additional issue of securities.
7. The amendments to the Charter in connection with the share capital increase.
8. Changes in the accounting for the line "Authorized capital".
Consider what features may occur in the case that the decision to increase the share capital provides non-monetary form of payment of additionally issued shares.
1. The introduction to the Charter the provisions on authorized shares does not presuppose any particularities depending on the form of payment. The number of authorized shares shall not be less than the planned number of additional shares. In addition to the other provisions in the articles of Association must be set out the rights granted to the declared shares. May be an indication of the fact that the announced shares grant the same rights as placed ordinary shares, shall be allowed a link to the bylaws, where such rights are specified.
2. Before you make a decision (the decision to increase the Charter capital), there needs to be a preliminary stage to agree upon an independent appraiser, which will be held to determine the market value of the property; in addition, it is necessary to define the property that will be made in the payment of the shares. In accordance with the PP. 6.1.2 standards for the issue, the decision to increase the share capital, among other things, should contain a list of property which may be paid additional
promotions, and information about the valuer engaged for determining the market value of such property.
Emissions standards set (PP. 2.5.3), which after the state registration of the additional share issue and before the end of the period of placement in the decision on additional issue of securities can be amended. But it changes the extension of the term of placement of shares of additional issue and, as specified in the emission standard, in exceptional cases, change of other terms of the placement, if such a change caused by necessity of protection of interests of owners and/or potential purchasers of additional shares and not
violates their rights. However, if these changes will affect the conditions determined in the resolution on the share capital increase, which was adopted by the General meeting of shareholders, such changes will be adopted by the General meeting of shareholders, which is important when planning the timing and implementation of the required placement procedures. That is, when changing the composition of the assets contributed as payment for shares will be required to hold a General meeting of shareholders.
3. In the preparation of the decision on additional issue of securities, defining the manner and conditions of their placement and eligible for registration in FSFM of Russia, you should also consider the number of features associated with the payment for the shares of the property.
In accordance with the Standards of the issue period for the offering of the additional issue specified in the decision on additional issue of securities, can achieve one year from the date of state registration of the additional issue of shares. But we have previously noted that "the validity" of the evaluation report is only 6 months from the date of its publication. Thus, since the preparation of the report of the independent appraiser before the value of the property contributed as payment of shares, and in fact, any property as payment for the shares must not be more than six months.
However, note that if the right of ownership of the property, such as a building, requires state registration, the date of the actual make of the property will be, this is the date of state registration of rights for joint stock companies whose shares that property are paid. It may take a lot of time. Even more time will be required in the case when the person paying for additional shares of the property are not properly registered their rights to such property. This question it is necessary to attend in advance. I repeat: a violation of the term of placement of shares of additional issue shall be grounds for refusal of state registration of the additional issue of shares.
If the payment is made, for example, shares in another company, the payment will be linked to the moment of the credit entry on personal account of the purchaser (joint – stock company- Issuer) in the register of shareholders of joint-stock companies, the shares of which are paid in additional shares issue. If payment is made to the exclusive right to result of intellectual activity, the date of payment will be linked to the conclusion of the contract on alienation of exclusive right. In accordance with the rules of law the contract of alienation of exclusive rights does not require state registration.
In accordance with paragraph 1 of article 77 of the Law on joint-stock companies monetary evaluation of the property determined by resolution of the Board of Directors (Supervisory Board) of joint stock companies, the participation in the vote accept not interested in the transaction members of the Board of Directors (Supervisory Board). The corresponding decision should be accepted and properly processed. If the Board of Directors (Supervisory Board) is not provided by the Charter company or provided, but not formed, such a decision should be made by the General meeting of shareholders.
4. The composition of documents submitted to the FFMS of Russia or its regional office for the registration of the additional issue of securities is determined by the emission standard.
5. After registration of the decision on additional issue of joint-stock company may start placement of securities. To this end, the society enters into with investors of the relevant contracts. When payment for additional shares of the property each of the parties transfers to the other side of one asset in exchange for another (the more you start in exchange for the property referred to in the decision on placement), and in accordance with the Civil code of the Russian Federation, such a Treaty is a contract of barter.
After the contract is signed and produced all of the actions associated with payment, joint-stock company – the Issuer issues a transfer order being the basis for a credit entry on personal account of the purchaser – party subscription.
During placement it is very important not to overlook the requirements of the Law on joint-stock companies, concerning the transactions. The requirements of this law to the procedure of making major transactions shall not apply to transactions connected with placement through subscription of ordinary shares of the company (clause 1, article 78). However, such transactions should always be checked for the presence of interest in the Commission and, accordingly, subject to the requirements of the companies Act applicable to the procedure for transactions with interest.
Stakeholders can potentially be:
• member of the Board of Directors (Supervisory Board) of the Issuer;
• the person performing the functions of the sole Executive body of the Issuer, including the managing organization or the Manager.
• member of the collegial Executive body of the Issuer;
• shareholder of the Issuer having together with affiliated persons 20 and more percent of voting shares of the Issuer;
• persons entitled to give obligatory for a society him instructions.
Interested and recognized such persons, if these persons and (or) their affiliated persons:
▪ acquire shares of additional issue are subscription member;
▪ possess 20 and more percent of shares (shares, shares) the legal person who acquires shares of the additional issue, that is, a subscription member;
▪ hold positions in the management bodies of the legal entity who acquires shares of the additional issue, that is, a subscription member;
▪ in other cases defined by the Law on joint-stock companies and the Charter of the Issuer.
The transaction which constitutes an interested party, must be approved before execution by the Board of Directors (Supervisory Board) or General meeting of shareholders of the Issuer. The transaction is subject to approval by the General meeting of shareholders of the Issuer in case such a transaction are shares which constitute more than 2 percent of ordinary shares earlier placed by the Issuer.
6. At the stage of state registration of the report on additional share issue, special attention should be paid to the set of documents submitted for state registration. Thus, in accordance with the requirements of the emission Standards for the state registration of the report on additional issue of shares, paid up, additionally, the following documents:
▪copies of the minutes (extracts from minutes) of meeting (meetings) of the authorized Issuer's management body which adopted the decision on determining the monetary value of property contributed as payment for placed securities;
▪a copy of the appraisal report (sections of the appraisal report containing the main findings and conclusions (operative part) and information about the customer and the appraiser, and the page (s) report of appraiser, with the signature of appraiser, personal stamp of the appraiser engaged in valuation activities themselves, engaging in private practice or the signature of the appraiser signature and seal of the legal entity with which the appraiser concluded the employment contract) on the market value of the property contributed as payment for placed securities;
▪a document confirming the right of ownership of the Issuer's real property, brought in payment of placed securities;
▪a copy of the decision of the authorized Federal Executive authority body of a constituent entity of the Russian Federation or body of local self-government on the terms of privatization of state and/or municipal property if the payment for placed securities were made public and/or municipal property;
▪a document confirming notification of the Federal Executive authority authorized by the Government of the Russian Federation, adopted by the Board of Directors (Supervisory Board) of the joint stock companies the decision on the monetary valuation (market value) of property contributed as payment for placed shares (for joint-stock companies, the owner is from 2 to 50% inclusive of the voting shares of which are state and/or municipality).
Paragraphs 7 and 8: the procedure for amending the Charter and financial statements on the basis of the registered report on the results of additional issue of shares of the special review is not required.
We have now discussed the main points that distinguish the procedure of increasing the Charter capital by issuing additional shares by means of subscription for payment for shares by monetary funds from the relevant procedure, with payment in cash.