icap_long_questions_share_capital Flashcards
What is the definition of a share and share capital in a company?
A share represents a unit of ownership in the share capital of a company. Share capital is the total amount invested by the company’s owners, divided into smaller parts known as shares. Each share has a nominal or face value.
Explain the difference between nominal value and market value of shares.
Nominal value is the face value of a share as stated in the company’s documents, while market value is the price at which shares are traded on the stock exchange. For example, a share may have a nominal value of Rs. 10 but a market value of Rs. 15.
What is authorized share capital, and how is it significant for a company?
Authorized share capital is the maximum amount of capital a company is allowed to raise through shares as stated in its memorandum. It defines the limit within which the company can issue shares.
What is the procedure to increase authorized share capital?
A company can increase its authorized share capital by altering its memorandum through a special resolution passed by the shareholders. The altered memorandum must be filed with the registrar.
What is the difference between issued, subscribed, and paid-up share capital?
Issued capital is the portion of authorized capital offered to shareholders. Subscribed capital is the part of issued capital that shareholders agree to buy. Paid-up capital is the amount actually paid by shareholders.
Why must a company disclose both authorized and paid-up capital in publications?
This ensures transparency and compliance with legal requirements. Failing to do so may result in penalties for the company and its officers.
Describe the key characteristics of shares.
Shares are movable property, transferable as per the articles of the company, must be fully paid upon allotment, distinguished by distinctive numbers, and evidence of ownership is provided through share certificates.
What is the significance of a share certificate?
A share certificate serves as proof of ownership of shares. It is issued under the signature of an authorized company officer and includes details such as the shareholder’s name, share numbers, and face value.
What are the possible variations in shareholder rights?
Variations include differences in voting rights, dividend entitlement, rights for bonus or right shares, rights to attend meetings, and redemption or conversion privileges. These variations may apply for a limited or indefinite period.
What is the procedure for altering shareholder rights?
Shareholder rights can be altered by passing a special resolution and amending the articles of association. If it affects a specific class of members, a 3/4th majority of that class must approve.
How can shareholders challenge a resolution that varies their rights?
If 10% or more affected shareholders believe their rights are unfairly prejudiced, they can apply to the court for cancellation of the resolution within 30 days. The court’s decision on the matter is final.
What is the significance of maintaining distinctive numbers for shares?
Distinctive numbers uniquely identify shares, preventing duplication and ensuring accurate records of ownership and transactions.
Explain the concept of variation in voting rights among shareholders.
Different classes of shares may have different voting rights, such as full voting rights, no voting rights, or disproportionate voting rights relative to share value. These must be defined in the company’s articles.
What are bonus shares, and how are they issued?
Bonus shares are additional shares issued to existing shareholders without any cost, using the company’s retained earnings. They are issued in proportion to existing holdings.
What is a rights issue, and how does it benefit shareholders?
A rights issue allows existing shareholders to buy additional shares at a discounted price before offering them to the public, protecting their ownership percentage in the company.
