Financial Aspects of New Companies Act

by

Naomal Goonewardena
Partner NITHYA PARTNERS

Issue of Share Capital

There is no nominal or par value on the share

The consideration on the issue of shares has to be reasonable to the Company and to all existing Shareholders.
The consideration for which a share is issued may take any form including cash, promissory notes, future services, property of any kind or other securities of the Company. Rights of pre-emption on new issue of shares which ran pari passu or above existing shares recognized.

Stated Capital

Means, the total amount received by the Company or due and payable to the Company in respect of the issue of shares and in respect of calls on shares. Where a share is issued for consideration other than cash, the Board shall determine the cash value of such consideration for the purpose of above.

Dialog Telekom Limited As at 31st December 2006

Non Current Assets
Current Assets Total Assets Current Liabilities Non Current Liabilities

22,430,141
10,766,494 33,196,635 (6,865,182) (9,130,582) 17,200,871

22,430,141
10,766,494 33,196,635 (6,865,182) (9,130,582) 17,200,871

Represented by: Share Capital Share Premium Revaluation Reserves 5,018,115 5,276,943 4,896 Stated Capital 10,295.058

4,896

Retained Earnings

6,900,917
17,200,871

6,900,917
17,200,871

Scenario 1
Dialog issues 1 Billion Preference Shares of the par value of Rs. 1/= at a price of Rs. 4/= per Share, carrying a dividend of 40%
Net Assets 21,200,871

Represented By :
Share Capital Ordinary Shares of the par value of Rs. 1/= each (1) Preference Shares of the par value of Rs. 1= each (2) Share Premium Re-valuation Reserves Retained Earnings 5,018,115 1,000,000 6,018,115

8,276,943
4,896 6,900,917 21,200,871

(1)
(2)

Represented by 8.5 Billion Ordinary Shares of the par value of Rs. 1/- each Represented by 1 Billion Preference Shares of the par value of Rs. 1/- each

Scenario 1
Contd

Dialog issues 1 Billion Preference Shares at a price of Rs. 4/= per Share, carrying a Dividend of Cents 40 per Share
Net Assets 21,200,871

Represented By :
Ordinary Share Capital (1) Preference Share Capital (2) 10,295,058 4,000,000 14,295,058 4,896 6,900,917 21,200,871
(1) (2)

Stated Capital

Re-valuation Reserves Retained Earnings

Represented by 8.5 Billion Ordinary Shares Represented by 1 Billion Preference Shares

John Keells Holdings Limited As at 31st March 2006

Non Current Assets
Current Assets Total Assets Current Liabilities

27,982,419
11,478,005 39,460,424 8,476,815

27,982,419
11,478,005 39,460,42 8,476,815

Non Current Liabilities

Minority Interest

4,372,763
3,666,132 22,944,714

4,372,763
3,666,132 22,944,714

Represented by: Share Capital Share Premium Revaluation Reserves Retained Earnings 4,000,070 0 8,201,695 10,742,949 22,944,714 Stated Capital 4,000,070

8,201,695 10,742,949 22,944,714

The Current Share Capital of John Keells of Rs. 4.0 Billion is represented by 400,007,000 Ordinary Shares of the par value of Rs. 10/- each. If JKH makes a 1 : 7 Bonus Issue immediately after the Balance Sheet Date and therefore 57,142,858 new Ordinary Shares would get created by the capitalization of 571,428,581 from Reserves.

Scenario 2
JKH goes for a 1 for 7 Bonus Issue

Net Assets

22,944,714

Represented By :

Share Capital (1)

4,571,498

Re-valuation Reserves Retained Earnings

7,630,267 10,742,949 22,944,714

(1)

Represented by 457,149,985 Ordinary Shares of the par value of Rs. 10/- each

Scenario 2
Contd

JKH goes for a 8 for 7 Share Split

Net Assets

22,944,714

Represented By :

Share Capital (1)

4,000,070

Re-valuation Reserves Retained Earnings

8,201,695 10,742,949 22,944,714

(1)

Represented by 457,149,985 Ordinary Shares

Distributions and Solvency Tests

Where any distribution is involved, the Board must be satisfied that the Company be satisfied after the distribution is made the solvency test and the Auditor should issue a Certificate of Solvency. The distribution is defined as, a) The direct or indirect transfer of money or property, other than the shares of a Company, to or for the benefit of a Shareholder; or b) The incurring of a debt to or for the benefit of a Shareholder, In relation to a share held by that Shareholder, whether by means of a payment of dividend, a redemption or other acquisition of the share or shares, a distribution of indebtedness or otherwise.

The Solvency Test is satisfied if, i) company being able to pay its debts as they become due in the normal course of business; and

ii) the value of the Companys assets is greater than

the value of its liabilities; and the Companys stated capital

In determining Solvency, the Board should take into account the most recent financial accounts, circumstances which might affect the Companys assets and liabilities, a fair valuation or other method of assessing the value of assets and liabilities.

Dialog Telekom Limited As at 31st December 2006

Non Current Assets Current Assets 22,430,141 10,766,494

Total Assets
Current Liabilities Non Current Liabilities

33,196,635
(6,865,182) (9,130,582) 17,200,871

Stated Capital Solvency Represented by: Revaluation Reserves Retained Earnings

(10,295,058) 6,905,813

4,896 6,900,917 6,905,903

Share Valuation and Auditors Obligations

On a Company purchase of its own shares, the Auditor has to opine that the consideration being given is a fair value
Where the Companys Articles are altered to impose or remove a restriction on the business activity or a major transaction is carried out or there is an amalgamation, the minority shareholder shall be entitled to require the Company to purchase its shares. In such an instance, any dispute in the price has to be referred to the Auditor for determination as to what constitutes a fair and reasonable price.

Maskeliya Plantations Limited As at 30th June 2006

Non Current Assets
Current Assets Total Assets Current Liabilities

1,964,029
651,173 2,615,202 470,256

1,964,029
651,173 2,615,202 470,256

Non Current Liabilities

Minority Interest

988,783
0 1,156,163

988,783
0 1,156,163

Represented by: Share Capital Share Premium Revaluation Reserves Retained Earnings 269,767 80,223 540,000 266,173 1,156,163 Stated Capital 349,990

540,000 266,173 1,156,163

The aforesaid Balance Sheet reveals that the Net Asset Value per Share is approximately Rs. 41.98.
If there is a purchase by a Company of its own shares and 10 Million Shares are bought out at a price of Rs. 30/- per share (current market price is Rs. 25/per share) and the funding of Rs. 300 Million is obtained from a Bank, it could be seen that there could be added value for the remaining Shareholders, since the NAV goes up to Rs. 50.42 per share. The Revised Stated Capital of Rs. 49,990,000/- is represented by 16,976,700 Ordinary Shares.

Maskeliya Plantations Limited Revised Balance Sheet As at 30th June 2006

Non Current Assets
Current Assets Total Assets Current Liabilities

1,964,029
651,173 2,615,202 770,256

Non Current Liabilities

Minority Interest

988,783
0 856,163

Represented by: Share Capital Share Premium Revaluation Reserves Retained Earnings Stated Capital 49,990

540,000 266,173 856,163

Accounts

Should be prepared within 6 months of balance sheet date In addition to two Directors it needs to be certified by the person responsible for its preparation, Entitlement to receive more than half the dividends paid on shares would make the Company a subsidiary (other than where there is no right to participate beyond a specified amount in a distribution of profits or capital) Group Financial Statements not required if the Company itself is a wholly owned subsidiary of another Company Provision for accounts in summarized form (as approved by ICASL) to be sent with Annual Reports

Audit

Auditor should ensure that judgement not impaired by reason of any other relationship with or interest in the Company or any of its subsidiaries.

Auditor shall disclose the amounts payable by the Company as audit fees and expenses and as a separate item any fees and expenses payable by the Company for other services.