Issue of shares below its nominal value is restricted by statue and common law. Discuss.

1. The general rule is that shares cannot be issued at discount. (Ooregum Gold Mining Co. of India v. Roper)

2. Issue of shares at discount is ultra vires, unless requirements in section 59(1) are satisfied:

Section 59(1)

1. Authorized by passing a resolution and confirmed by court.

2. Done within 1 month of court confirmation.

3. Done within 1 year since the company is entitled to commence business.

4. Maximum rate of discount is to be stated in the resolution.

5. It must be first offered to existing shareholders proportionately and the prospectus must contain the particulars of the discount.

6. It must be a class of shares already issued.

Exceptions where share can be issued at discount

1. It is a convertible debenture issued at discount.

2. To underwriters, provided that it is less than 10% of total issued capital.