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Claw > icap_long_flashcards_share_capital > Flashcards

icap_long_flashcards_share_capital

1
Q

Define ‘Share’ and ‘Share Capital’ with examples.

A

Share: Share means share in ‘Share Capital’ of a company.
Share Capital: Share capital refers to the total amount invested by the owners of a company. The total share capital is divided into smaller parts, known as shares. Each share has a nominal value.

Example: 500,000 shares of Rs. 10 each = Rs. 5,000,000 share capital.

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2
Q

Explain the difference between Authorized, Issued, and Paid-up Share Capital.

A
  1. Authorized Capital: The maximum share capital authorized by the memorandum of a company.
  2. Issued Capital: The portion of authorized capital that has been issued to shareholders.
  3. Paid-up Capital: The amount of issued capital actually paid by shareholders.
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3
Q

Describe the publication requirements for Authorized and Paid-up Capital.

A
  1. If a company states its authorized capital in any notice , advertisment or other official publication, it must also state its paid-up capital.
  2. Both statements must be equally prominent and conspicuous.
  3. Non-compliance results in penalties not exceeding of level 1 for the company and responsible officers.
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4
Q

List the characteristics of shares and their certificates.

A
  1. Nature of Shares: Movable property, carrying right and obligation and is transferable as specified by articles.
  2. Payment: Shares must be fully paid when allotted.
  3. Identification: Shares must have distinctive numbers.
  4. Share Certificate: Evidence of ownership, issued physically or electronically under the signature of an authorized officer of the company.
  5. Issuance: Form and procedure specified in the articles.
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5
Q

What are the possible variations in shareholders’ rights?

A
  1. Voting Rights: May vary (e.g., no voting rights or disproportionate to paid-up value).
  2. Dividend Rights: Different entitlements to dividends, right shares, bonus shares.
  3. Meeting Rights: Different rights to receive notice and attend meetings.
  4. Redemption/Conversion Rights: Different terms for share redemption or conversion.
  5. Period: Rights may be limited to a specific period or indefinite.
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6
Q

Explain the procedure to vary shareholders’ rights.

A
  1. Pass a special resolution to alter the articles of association.
  2. Obtain approval from 3/4th majority of affected class if rights or liabilities are impacted.
  3. File the altered articles with the registrar within 30 days of resolution.
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7
Q

How can shareholders challenge variations in rights?

A

1.Appeal: 10% or more members of the affected class can apply to court within 30 days of resolution.
Application can be made by one or more members authorized in writing on behalf of
others.
2. Order of Court
Court shall pass an order to cancel resolution only if it is proved that:
1: Resolution can be challenged if material facts were withheld .If members had
been in knowledge of this facts, or
2 :if variation unfairly prejudices the affected class.
3. Finality: Court’s decision is final, and no appeal can be filed against it.
4. Filing: Company must forward a copy of the court’s order to the registrar within 15 days.

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8
Q

Define ‘Market Value’ and its relevance to shares.

A

Market Value: The value at which shares are traded on the stock exchange. It reflects investor confidence and market demand but does not impact the company’s paid-up or authorized share capital.

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9
Q

What is the penalty for issuing partly paid shares?

A

Issuing partly paid shares is not permitted. Companies must issue only fully paid shares. Non-compliance results in regulatory penalties.

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10
Q

What is the significance of distinctive numbers for shares?

A
  1. Distinctive numbers uniquely identify each share.
  2. Prevents duplication and ensures clear ownership records.
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11
Q

How are shares transferred in compliance with company law?

A
  1. Submit a share transfer deed.
  2. Comply with the articles of association.
  3. Register the transfer with the company within the prescribed timeline.
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12
Q

What happens if share transfer is restricted by articles?

A

Shareholders must follow the specified restrictions, such as obtaining approval or offering shares to existing members before transferring to others.

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13
Q

Explain the process of issuing bonus shares.

A
  1. Source: Issued from company reserves.
  2. Ratio: Allotted in proportion to existing shareholdings.
  3. Approval: Requires board and sometimes shareholder approval as per articles.
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14
Q

What is the role of the securities premium account?

A
  1. Holds premium received from shares issued above nominal value.
  2. Uses: Issuing bonus shares, covering share issue expenses, or writing off preliminary expenses.
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15
Q

What is the importance of paid-up capital for creditors?

A

Paid-up capital indicates the actual capital available in the company, reflecting financial stability and creditworthiness for creditors.

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16
Q

What is ‘Authorized Capital’?

A

Authorized Capital, also called Nominal Capital, is the maximum amount of share capital authorized by the memorandum of a company.

17
Q

Define ‘Issued Capital’ and its limits.

A

Issued Capital is the portion of Authorized Capital issued to shareholders. It cannot exceed the Authorized Capital.

18
Q

What is the importance of share certificates?

A
  1. Acts as proof of ownership for shareholders.
  2. Legally required document issued under the company’s authority.
  3. Includes share details and signature of authorized personnel.
19
Q

Describe the liability for non-compliance in publishing paid-up capital.

A

Non-compliance in publishing the paid-up capital alongside authorized capital attracts penalties for both the company and responsible officers.

20
Q

What are the different bases for classifying shares?

A
  1. Voting Rights: Ordinary or Preference shares.
  2. Dividend Rights: Fixed or variable entitlements.
  3. Redemption: Redeemable or Irredeemable shares.
  4. Conversion: Convertible or Non-convertible shares.
21
Q

Explain the significance of share transfer restrictions in articles.

A

Share transfer restrictions ensure:
1. Control over ownership changes.
2. Protection of existing shareholders’ rights.
3. Compliance with company policies.

22
Q

What are the key steps in the subscription process of shares?

A
  1. Issuance of shares by the company.
  2. Payment for shares by individuals/promoters (Subscription).
  3. Allotment of shares to applicants’ names (Paying up of capital).
23
Q

What is the meaning of a ‘Redeemable Share’?

A

Redeemable Shares are those which the company can buy back after a certain period or under specified conditions, as per the company’s articles.

24
Q

What are ‘Convertible Shares’?

A

Convertible Shares are those that can be converted into another class of shares or securities, such as equity shares or debentures.

25
Q

How are variations in shareholders’ rights handled?

A
  1. Special Resolution: Pass a resolution to alter rights.
  2. Approval: Obtain 3/4th majority of the affected class.
  3. Filing: Submit altered articles to the registrar.
26
Q

What is the importance of filing altered articles with the registrar?

A
  1. Legal Compliance: Ensures alterations are recognized.
  2. Transparency: Maintains updated public records.
  3. Avoids Penalties: Prevents regulatory issues.
27
Q

When can shareholders appeal to the court against variation in rights?

A
  1. If 10% or more members of the affected class disagree.
  2. Appeal must be filed within 30 days of the resolution.
28
Q

What are ‘Right Shares’?

A

Right Shares are additional shares offered to existing shareholders in proportion to their holdings, often at a discounted price.

29
Q

What are the consequences of issuing bonus shares?

A
  1. Increases share capital without raising new funds.
  2. Reduces company reserves.
  3. Rewards existing shareholders.
30
Q

What is the ‘Face Value’ of a share?

A

Face Value, also called Nominal or Par Value, is the stated value of a share as specified in the company’s memorandum.

31
Q

Define ‘Securities Premium’ and its uses.

A

Securities Premium is the amount received over and above the nominal value of shares. Uses include:
1. Issuing bonus shares.
2. Writing off preliminary expenses.
3. Paying for share issue costs.

Claw (4 decks)

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