Chapter 15 Share capital

Question 1

What is a share?

Answer 1

Share is a transferable form of property,carrying rights and obligations(shows interest of shareholder in a company)

Question 1

From where information about special rights attached to shares is obtainable?

Answer 1

1)The articles
2)Resolution and agreement relating to new class of shares
3)Statement of capital

Question 2

What is called up share capital?

Answer 2

The amount which the company has required shareholders to pay now or in future on the shares issued

Question 3

Called capital which is not yet paid is termed as?

Answer 3

Partly paid shares

Question 4

Debt on share is transferable to new shareholder or not?

Answer 4

Yes,if the share is transfered

Question 5

What are preference shares?

Answer 5

Those shares which take priority over ordinary shares in case of dividend payment and liquidation

Question 6

What is a class of shares?

Answer 6

Group of shares carrying identical rights

Question 7

Do ordinary shares have voting rights or not?

Answer 7

May or may not have

Question 8

Do preference shares have voting rights?

Answer 8

Usually they don’t have but we can create a class of preference shares with voting rights attached

Question 9

When a company goes into liquidation how unpaid cumulative dividends will be treated?

Answer 9

Preference shareholders cease to be entitled to the arrears unless:
1)A dividend has been declared
2)Articles expressly provide that in liquidation arrears to be paid

Question 10

Do preference shareholders are entitled to share in surplus assets when ordinary share capital is paid?

Answer 10

No

Question 11

What are the advantages of preference shares?

Answer 11

Greater security of income and capital

Question 12

What are redeemable shares?

Answer 12

Shares issued on terms that they may be bought back by the company either at a future specific date or at the shareholder’s or company’s option

Question 13

Are usual formalities required on reissue of treasury shares?

Answer 13

No

Question 14

Can voting rights of treasury shares be exercised?

Answer 14

No

Question 15

How do we can make variations in class rights?

Answer 15

With the consent of all shareholders in the class or with a majority specified in the articles

Question 16

What is the standard procedure for variation of class rights?

Answer 16

A special resolution shall be passed by a three quarters majority

Question 17

Increase in voting strength of a class as an incidental effect of its subdivision is variation of class rights.

Answer 17

False

Question 18

Creation of a new class of preference shares which take priority over existing class of ordinary shares constitute a variation of class rights of later class.

Answer 18

No

Question 19

When do minorities can appeal to the court for unfair prejudice regarding variation of class rights?

Answer 19

The objectors together must:
1)hold not less than 15% issued shares of the class
2)Not consented or voted in favour of the variation
3)Apply within 21 days of the consent given by the class

Question 20

What will be the court action when minority appeals for unfair prejudice in variation of class rights?

Answer 20

The court will either reject or accept the variation.It cannot change the terms of the variation

Question 21

Do directors of private company have power to allot shares?

Answer 21

Directors of private companies with one class of shares have power to allot shares unless restricted by the articles

Question 22

Directors of public companies can allot shares or not?

Answer 22

Directors of public companies,or private companies with more than one class of shares may not allot shares without authority from members

Question 23

What will happen if directors allot shares without authority?

Answer 23

It is a criminal offence and the directors may be fined(the allotment remains valid)

Question 24

Is it obligatory for a company that when it proposes to issue shares first offer to existing shareholders?

Answer 24

Yes,it has a statutory obligation

Question 25

Is it necessary for a right issue to be in writing?

Answer 25

Yes it must be

Question 26

What is the period of time for which the offer of right issue will remain valid?

Answer 26

21 days,the offer may be accepted but may not be withdrawn

Question 27

What is the period of time within which members can claim against the company for not offering right issue?

Answer 27

Within 2 years the members can recover compensation for their loss

Question 28

Can pre-emption rights be excluded?

Answer 28

A private company may by its articles permanently exclude these rules

Question 29

What are bonus shares?

Answer 29

These shares are fully paid up with no cash called for from the shareholders

Question 30

Can a company issue shares at premium or discounts?

Answer 30

It can issue at premium but not at discount

Question 31

What are the consequences when a company allotted shares at discount?

Answer 31

The allottee must pay full nominal value with interest at the appropriate rate

Question 32

What are the uses of a share premium account?

Answer 32

1)Bonus issue
2)Issue expenses and commission on new share issue

Question 33

Who can do valuation of a non cash consideration in a private and public company?

Answer 33

In private companies directors can do valuation however in public companies independent valuer will do valuation

Question 34

An undertaking to perform services in future as consideration is acceptable or not?

Answer 34

No

Question 35

If a company accepts future services as consideration what are the consequences for the shareholder?

Answer 35

The shareholder must pay the company in cash their nominal value plus any premium and interest of 5% on any such amount

Question 36

Within how many years of receiving trading certificate a company may not accept the transfer of non cash asset from a subscriber?

Answer 36

Within 2 years of receiving trading certificate

Question 37

What are the conditions under which a company can accept transfer of non cash asset within two years of receiving trading certificate?

Answer 37

This is unless its value is less than 10% of the issued share capital and it has been independently valued and agreed by an ordinary resolution