A Guide to Investment in India’s Mineral Sector
FOREIGN INVESTMENT Company law and modes of finance Company Law The Companies Act, 1956, governs the law relating to companies. The Indian mining law requires that mineral concessions are granted to companies registered in India under the Companies Act, 1956, irrespective of the pattern of foreign holding therein. Companies incorporated under the Act can be ‘Public’ or ‘Private’ companies, with or without limited liability. The limited liability structure can be achieved through limitation by shares, or by guarantee. Even an unlimited company can be incorporated under the Indian Companies Act. The Government has also enacted the Competition Act, 2002 on 13th January, 2003 keeping in view the economic development of the country, to provide for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India, and for matters connected therewith or incidental thereto. MODES OF FINANCE The two basic methods of funding projects are either by means of equity or debt. Outlined below are some of the more common instruments in India, and a brief description of them. Equity share capital (common stock) Ordinary shares are the basic element of ownership of a company. They carry voting rights, and therefore, are the ultimate means of exercising control of a company, as well as rights to dividends and return of capital upon winding up. The normal value of equity shares is Rs. 10 per share. Shares may be issued at par, at a premium or at a discount, by existing companies. The companies can freely price their equity shares. However, they have to give justification of the price in the offer document/letter of offer. Companies can also issue non-voting equity shares, equity shares with equal voting rights and shares with differential rights, as to dividend, voting, or otherwise. A listed company is eligible to make a public issue if the issue size (i.e. offer through the offer document, firm allotment and promoters’ contribution through the offer document) is
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