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CHAPTER 3 Flashcards

1
Q

What is share capital?

A

Share Capital refers to the Capital made up of Equity & Preference Shares.

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2
Q

Authorised Capital:

A

Authorised Capital is the maximum capital authorised by Memorandum of Association that a company can raise by issuing shares.

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3
Q

Issued Capital:

A

Issued Capital is that portion of Authorised capital that a company offers to prospective investors for subscriptions. It represents the shares available for the public to buy (i.e subscribe to)

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4
Q

Unissued Capital:

A

Unissued Capital is the portion of Authorised Capital that has not been offered to the public. It remains available for future issuance.

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5
Q

Subscribed Capital:

A

Subscribed Capital is the portion of capital investors have agreed to take or buy (i.e subscribe to) It represents part of Issued capital which the investors have subscribed to.

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6
Q

Unsubscribed Capital:

A

Unsubscribed Capital is the portion of Issued Capital that has not been subscribed to by the investors. It is available for future subscription by investors.

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7
Q

Called - up Capital:

A

Called-up capital is the portion of subscribed capital that has been ‘called’ or demanded to be paid by the shareholders.

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8
Q

Uncalled Capital:

A

Uncalled Capital is the portion of subscribed capital that has not yet been ‘called’ or demanded by the shareholders. This amount can be called up by the company in future as per their requirement of funds.

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9
Q

Reserve Capital:

A

Reserve capital is the part of uncalled capital that a company decides to call only at the winding up of the company.

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10
Q

Paid-up Capital:

A

Paid-up capital is the total amount of money actually paid by shareholders when company ‘calls’ or demands payment. It represents the portion of Called-up Capital that has been fully paid by the shareholders.

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11
Q

Calls in Arrears:

A

Calls in arrears is the amount not paid by shareholders when the company ‘calls’ or demands payment. This is also called as unpaid calls.

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12
Q

Methods of Issue of Shares:

A

Methods
|
Public Offer - 1. IPO 2. FPO
|
Existing Equity Shareholders - 1. Rights Issue 2. Bonus Issue/Shares
|
Employees - 1. ESOS 2. ESPS 3. SARS 4. Sweat Equity Shares
|
Private Placement - 1. Rights Issue 2. Preferential Allotment.

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13
Q

IPO:

A

Initial Public Offer refers to the process of offering shares of a company to the public for the first time. It can be a new or existing company raising capital from shares, when it requires new fresh funds.

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14
Q

FPO:

A

When a company issues shares to the public after an IPO, it is called as Further (Follow on) Public Offer. Thus, every issue of shares by a listed company after it’s IPO is called FPO. FPO leads to an increase in the subscribed capital of a company.

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15
Q

Fixed Price Issue Method:

A

In fixed price issue method, a company specifies the quantity and price of shares in it’s prospectus and investors must pay a portion or the entire issue price with their application. The company learns the demand for its shares only after the subscription period ends. This method can be used for various types of issues, including public issue, rights issues and ESOS, and shares can be issued at par or premium.

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16
Q

Book building Method:

A
  • Price is determined through a bidding process.
    -Red Herring Prospectus with price range, asking investors’ bid.
    -Floor price, Ceiling price, final price = cut off price.
    -5 days, application money to Lead Merchant Banks, who enter bids in book, called as ‘Book Runners’.
    -Cut off price is fixed and new prospectus with it is issued.
    -Used for FPO, IPO.
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17
Q

Rights Issue:

A

A rights issue is when a company issues new shares to its existing equity shareholders in proportion to their current holdings, giving them the first option to buy these shares. The existing equity shareholders basically have ‘Pre-emptive rights’ to subscribe to new shares of the company.

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18
Q

Provisions to be followed by company when making a RIGHTS ISSUE:

A

Provisions for Rights Issue:

  • Discounted Price: Rights shares sold to existing shareholders at a price lower than market price.
  • Letter of Offer: Sent to existing shareholders, mentioning:
    • Number of Shares: Offered.
    • Offer Period: Valid for 15-30 days.
    • Right to Renounce: Shareholders can transfer their rights to others.
  • Delivery Methods: Offer letter can be sent via registered post, speed post, courier, or electronic mode.
  • Non-Response: If no response within the stipulated time, the company can offer unsold shares to new investors.
  • Minimum Subscription: 90% of the issue required.
19
Q

Bonus Issue/Shares:

A

Bonus Shares are fully paid shares issued free of cost to existing equity shareholders in proportion to their shareholdings, typically from a company’s accumulated distributable profits or reserves.

20
Q

Bonus shares are also called :

A

Capitalisation of profits or reserves

21
Q

Provisions to be followed by company when making a BONUS ISSUE:

A

Provisions for Bonus Issue:

  • Issued only from:
    • Free reserves
    • Securities Premium Account (premium from shares sold at premium)
    • Capital Redemption Reserve Account (profits for specific purposes like issuing Bonus Shares)
  • Not from reserves created by Revaluation of Assets (current value recalculated)
  • Cannot replace dividend payments
  • Once announced by the Board of Directors, it cannot be withdrawn
  • Fully paid up shares
  • Shareholders cannot renounce (give away) their Bonus shares
  • No minimum subscription required
22
Q

ESOS:

A

Employees Stock Option Scheme is a scheme which allows permanent employees, directors or officers of a company, it’s holding company or subsidiary company the benefit or right to purchase the company’s equity shares at a future date for a pre-determined price.

23
Q

Provisions related to ESOS:

A

Provisions for ESOS:

  • Shares offered directly to employees or through an Employee Welfare Trust
  • Offered at a price lower than market price
  • Minimum vesting period of one year (time to apply for granted shares)
  • Lock-in period usually specified by the company, minimum one year (cannot sell shares)
  • No dividend or voting rights until shares are bought by the employee
  • Requires shareholder approval through special resolution
  • Employee cannot transfer, pledge, or mortgage the shares
  • Compensation committee must be set up to administer ESOS
  • Must comply with SEBI (Share Based Employee Benefits) Regulations, 2014
24
Q

ESPS:

A

Under ESPS, the company offers their employees the opportunity to purchase equity shares of the company at a price lower than the market value at a future date. Payment for these shares is deducted from the salaries of the employees.

25
Q

Provisions relating to ESPS:

A

-Different Shares: Offer different number of shares to different employee categories.
-Immediate Listing: ESPS shares must be listed immediately.
-Lock-in Period: Minimum one-year lock-in if not part of a public issue.
-SEBI Compliance: Follow SEBI (Shares Based Employee Benefits) Regulations, 2014.
-Shareholder Approval: Obtain approval via a special resolution.

26
Q

SARS:

A

Under SARS the employees are given the right to receive appreciation in the value of specified number of shares of the company at a future date. The company allots a specified number of ‘Stock Appreciation Right’ units that are linked to the value of the company’s shares on the date of allotment.
-appreciation value is paid at a future date in cash or equity shares, depending upon value of sars units
-bonus compensation
-shareholder approval by special resolution is required.
-employee doesn’t pay for the shares.
-Minimum 1 year vesting period, no lock-in period.

27
Q

Sweat Equity Shares:

A

These are shares issued to a company’s Directors or employees at a discount or for consideration other than cash in recognition of their valuable contributions resulting in increased profits.
- Pari passu to equity shares, lock in period of 3 years, require shareholders’ approval through special resolution.

28
Q

Private Placement:

A

When a company offers its securities to a select group of persons not exceeding 200 it is called as private placement. It is when the company offers securities to those selected or identified by the board of directors of company. They can be mutual funds institutional investors, etc.
-Requires Shareholders approval through sr.
-issue private placement offer letter with application.
- no right to renounce.
-fully or partly paid up shares.
-consideration should be paid by cheque, demand draft but not by cash.
- done by rights issue or preferential allotment.

29
Q

Preferential allotment:

A

When a company issues specified securities i.e, equity shares or securities that can be converted into equity shares in future to a select group of persons on preferential basis, it is called as preferential allotment.
-To promoters, existing equity shareholders, employees, venture capitalists etc.
-fully paid up, consideration in cash.
-Shareholders approval through special resolution.
-less time consuming, less paperwork.

30
Q

Allotment of Shares:(Meaning)

A

When a company issues shares to an applicant based on the application submitted, it is called as allotment of shares It involves distributing previously unallocated company capital to individuals in form of shares. The company issues prospectus with application form, which the applicants (subscribers) fill and submit along with application money to the company’s bankers. The board of directors approves the acceptance of such applications in the board meeting by passing resolution. This is allotment of shares.

31
Q

Which companies have to issue shares(securities) in dematerialised form under the Companies Act 2013.

A

i) A company making a public offer in excess of Rs. 10 crores.
ii) Unlisted Public companies for its new issues with effect from 10th Sept. 2018.
iii) Such other class or classes of companies as may be prescribed.

32
Q

A company issuing shares in demat form has to comply with which act?

A

Depositories Act, 1996

33
Q

What are the Statutory provisions a company has to follow that are laid down by the Companies Act, 2013.

A
  1. Registration of Prospectus
  2. Application Money
  3. Minimum Subscription
    4.Closing of Subscription list
  4. Basis of Allotment
  5. Over Subscription
  6. Permission to Deal on Stock Exchange
  7. Appointment of Managers to the issue and various other agencies.
34
Q

General Principles a company must follow while allotting shares:

A
  1. Proper Authority
  2. Allotment must be against application only
  3. Reasonable Time
  4. Absolute and Unconditional Allotment
  5. Communication
  6. Allotment should not be in contravention (violation) of any other laws
35
Q

Procedure for allotment of shares:

A
  1. Appointment of Allotment Committee
  2. Hold Board Metting to decide Basis of Allotment
  3. Pass Board Resolution for Allotment
  4. Collection of Application Money
  5. Arrangement relating to Letter of Renunciation
  6. Arrangement relating to Splitting of Allotment
  7. File Return of Allotment
  8. Prepare Register of Members and Issue Share Certificate.
36
Q

What is a Share Certificate:

A

A share certificate is a registered document issued by a company that serves as evidence of ownership of a specified number of shares.
-Prima facie evidence, proof in membership disputes.
-issued under common seal (if any), 2 authorised directors CS or any other authorised person.
-Issued to all allottees and transferees upon the transfer of shares, whether the shares are partly or fully paid up.

37
Q

Contents of the Share Certificate:

A

Share certificate should be in Form SH-1 prescribed under Companies (Share Capital and Debenture) Rules, 2014. Following are the contents of a share certificate -
i) Name of the Company, CIN, Registered office address.
ii) Folio Number
iii) Share Certificate Number
iv) Name of Member
v) Nature of share, number of shares and distinctive number of the shares.
vi) Amount paid on shares
vii) Common Seal, if any and signature of two Directors and Company Secretary.

38
Q

Time of allotment of Share Certificate: Within two months from date of
incorporation -

A

to subscribers of the Memorandum of
Association.

39
Q

Time of allotment of Share Certificate: Within two months from date of allotment

A

to allottees in case of allotment of shares.

40
Q

Time of allotment of Share Certificate: Within 1 month from date of receipt of
instrument of transfer or intimation of
transmission

A

to the transferee in case of transfer of shares
and to the legal representative in case of
transmission of shares.

41
Q

Duplicate Share Certificate:

A

Conditions for Issuance:
Original is defaced, mutilated, torn, lost, or destroyed.
Procedure for Lost Certificate:
Company announces loss in newspapers.
Issues duplicate if no response within specified time.
Time Frame:
Issued within three months from application.
Eligibility:
Only to registered shareholders.
Labeling:
Must state ‘Duplicate Share Certificate’ in bold.
Penalty:
Heavy penalty for issuing with intent to defraud.

42
Q

Call on shares:

A

Flashcard: Calls on Shares

Definition: Calls on shares refer to the company’s demand for shareholders to pay a part or full amount of the unpaid balance on shares. This is in addition to the application and allotment money.
Conditions:
Can be made only by the Board of Directors.
Requires a call letter/notice with a minimum 14-day notice period.
No call can exceed 25% of the nominal value of shares.
Minimum one-month gap between two calls.
Liability: Unpaid amount on partly paid shares is a liability of the shareholder.
Consequence of Non-Payment: Company can forfeit the shares if the shareholder fails to pay.
Procedure: Detailed in the company’s Articles of Association.

43
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44
Q
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