Chapter 5 (Share Capital)

Question 1

What are the types of share capital?

Answer 1

1. Authorized/ Nominal: Maximum amount of share capital which can be issued.
2. Issued and Paid-up: Share capital that is issued and paid by the public. Only fully paid shares can be issued.

Question 2

How is share capital expressed?

Answer 2

Example: 100,000 shares of Rs. 50 each (face value) = Rs. 5,000,000 (Share Capital).

Question 3

What is the process for issuing shares?

Answer 3

1. The company prepares a prospectus and obtains approval from the Commission.
2. The company issues the prospectus to the general public.
3. People subscribe for shares.
4. The company allots/issues shares.

Question 4

What are the characteristics of shares?

Answer 4

1. A movable property.
2. Has rights and liabilities.
3. Transferable.
4. Fully paid.
5. Evidence of ownership is the Share Certificate.

Question 5

What are the kinds of shares?

Answer 5

1. Ordinary Shares (or Equity Shares).
2. Preference Shares.

Question 6

What are the differences between Ordinary and Preference Shares?

Answer 6

1. Voting Rights.
2. Dividend Rights.
3. Repayment on winding up.
4. Basis of different classes.

Question 7

What are the possible classes of shares?

Answer 7

Classes such as Class A, Class B, etc., are possible in each kind of share.

Question 8

What are the rights of shareholders?

Answer 8

1. Voting rights.
2. To receive dividends.
3. To participate in Right issues and Bonus issues.
4. To receive notices and attend general meetings.
5. The right to redeem or convert shares.

Question 9

What is the liability of shareholders?

Answer 9

Up to the unpaid amount (if any).

Question 10

What is the procedure to alter the authorized share capital clause?

Answer 10

1. Authorized by its Articles.
2. Pass a Special Resolution.
3. File notice with the Registrar within 15 days.

Question 11

What are the ways in which authorized share capital may be altered?

Answer 11

1. Increase the share capital.
2. Cancel shares.
3. Subdivide shares into smaller values or into Ordinary and Preference categories.
4. Consolidate and divide shares into amounts larger than existing shares.

Question 12

How can the rights of shareholders be varied?

Answer 12

1. Pass a Special Resolution.
2. Obtain approval from 3/4th of the affected class if the alteration affects a specific class.
3. File the altered Articles with the Registrar within 30 days.

Question 13

What is the process for appealing against a resolution to vary shareholder rights?

Answer 13

1. At least 10% of shareholders of the affected class can apply to the court.
2. The application must be made within 30 days of the resolution.

Question 14

Under what conditions can the court cancel a variation in shareholder rights?

Answer 14

1. If material facts are withheld.
2. If the variation will unfairly prejudice the affected class.
3. A copy of the court order must be filed with the Registrar within 15 days.