Securities and exchange board of

India
Objectives of SEBI
 The objective of SEBI Act, 1992 is to provide for
the establishment of a board of India the object
of which , as stated in preamble is:
 To protect the interest of investor
 To promote the development of securities market
 To regulate the securities market
 SEBI protects the interests and rights of
investors, particularly small investors and
provides them guidance and education about
stock market.
 Organisation of SEBI
 SeBI is managed by a chairman ( appointed by the
central govt.) and eight other members. Two of these
members are officials of the ministry of central
government dealing with finance and law.
 One member among the officials of the RBI and five
members appointed by the central government, of whom
at least three are whole time members.
 The chairman and other members have to be persons of
ability, integrity who have shown competence in dealing
with problems related to securities market or have
special knowledge or experience of law, finance,
economics, accountancy and administration.
 Powers of SEBI

 Power to make or amend bye-laws of stock exchanges

 Power to supersede governing body of any recognized
stock exchange or to suspend any office-bearer of any
stock exchange
 Power to suspend business of stock exchange for period
not exceeding 7 days at a time.
 Power to call periodical returns and any other
information or explanation from recognized stock
exchange
 Power to grant permission to market intermediaries
 Functions of SEBI
 To control and regulate business in stock exchanges
 To regulate stock market intermediaries
 Registering and regulating depositories, foreign
institutional investors, credit rating agencies, custodian
of securities.
 Prohibiting fraudulent and unfair trade practices relating
to securities market
 Prohibiting insider trading in securities
 Calling for information, undertaking inspection,
conducting inquiries, and audit of stock exchange,
mutual funds, intermediaries and self regulatory
organizations.
 Company law regulations
 The company act, while providing for regulation of companies,
includes a general framework for dealings in the securities of such
enterprises.
 The major issuer of securities (marketable in securities market)
are the public companies. This section briefly outlines the
relevant aspects of the scheme of regulation of such dealings. The
main coverage relates to the following:
 Share capital/issue of shares
 Prospectus
 Right issues
 Issue of debentures
 Allotment of shares
 Issue of share certificates
 Share capital/issue of shares
 A company can be incorporated under the Companies act
as a company having share capital with limited liability.
 Memorandum of association
 Types of shares
 Alteration of share capital: can increase its share capital by
issuing new shares
 Sub-divide its shares into small shares of smaller amount
 These powers to alter the share capital can be exercised by
a company in a general meeting through ordinary
resolution.
 However any reduction in the share capital requires special
resolution and confirmation by the court.
 Issue of shares at premium: A company can issue shares at
premium. The amount of premium can be used for the following
purposes.
 Issue of fully paid share bonus shares
 Writing off the preliminary expenses
 Writing off the amount of commission or discount allowed on
issue of shares/ debentures

 Issue of shares at discount: if the following conditions are

satisfied:
 It is authorized by the government
 Maximum rate of discount can be 10%
 The company has completed one year of business
 The shares must be issued within 2 months after the sanction of
the government
 Voting rights
 Equity shareholders are entitled to vote on every resolution placed
at any general meeting of the company. Preference shareholders
can vote only on those resolutions by which any of their rights is
directly affected.
 In the following cases, preference shareholder has right to vote:
 If the dividend on cumulative preference share capital has not
been paid
 If the dividend on non-cumulative preference share capital has not
been paid either:
 For two years
 Prospectus:
 Prospectus refers to any document by which
a capital is offered to the public and upon the
basis of which the applicants actually
subscribe.
 The main purpose of prospectus is to invite
offers from the public for the purchase of any
securities of a company.
 Prospectus must contain all those information
which are prescribed by the companies act.
 Right issues
 The shares offered to the existing shareholders of a
company are called right shares. According to
companies act, any further shares proposed to be issued
by a company at any time after the expiry of two years
from the incorporation of a company or after the expiry
of one year from the first allotment of shares, whichever
is earlier must be offered to the existing shareholders of
equity shares at the date of the offer.
 The company has to make the offer in the form of a
notice, specifying the number of shares offered.
 The shareholders are given at least 15 days time from
the date of the offer to accept.
 Issue of debentures

 There are different kinds of debentures such as

redeemable, perpetual, mortgage, convertible and non-
convertible. Companies by and large issue redeemable
mortgage debentures. They are secured by a mortgage on
the whole or a part of the assets of the company.
 The power of issue of debentures with the board of
directors. The directors have to obtain the consent of the
shareholders by an ordinary resolution. If the amount
borrowed exceeds the aggregate of the paid up capital and
free reserves.
 Allotment of shares
 The first allotment of shares cannot be made unless the amount of
subscription stated in prospectus is subscribed and the sum payable
on application of shares is received by the company.
 The application money cannot be less than 5% of the nominal
amount of shares. If the company does not receive minimum
subscription is not received with in 120 days from the day of first
issue of prospectus, the amount received must be refunded.
 If the amount is not refunded within 130 days from the date of issue
of prospectus, interest at the rate of 6% is payable.
 Every company willing to make a public issue of shares or
debentures is required to make an application to one or more stock
exchange for permission to list these securities. An allotment would
be void if permission is not applied for or permission is not granted
by stock exchange.
 Issue of share certificates

 Every company which issues capital has to issue share

certificate as a prima facie of the title of the member to
such shares.
 The objective of issuing the certificate is to enable the
person to use it as a proof of ownership of shares and also
to enable others to act upon that certificate for any
sale/transfer of shares.
 The certificates duly stamped and signed by the director or
an authorized person under the common seal of the
company, are to delivered within 3 months after the
allotment of shares and within 2 months after the
application for registration of transfer.