Maharashtra Board Class 12 Secretarial Practice Chapter 3 Issue of Shares Solutions

Issue Of Shares 12th Secretarial Practice Chapter 3 Solutions Maharashtra Board

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 3 Issue Of Shares Textbook Exercise Questions And Answers.

Class 12 Secretarial Practice Chapter 3 Exercise Solutions

1A. Select The Correct Answer From The Options Given Below And Rewrite The Statements.

 

Question 1. ______ refers to capital made up of Equity and preference shares.
(a) Share capital
(b) Debt capital
(c) Reserve fund
Answer: (a) Share capital
In simple words: Share capital is the primary capital of a company, consisting of funds raised through the issuance of both equity and preference shares. It represents the ownership stake in the company.

🎯 Exam Tip: Distinguishing between share capital, debt capital, and reserve fund is crucial for understanding a company's financial structure.

 

Question 2. ______ capital refers to maximum capital a company can raise by issuing shares.
(a) Issued
(b) Authorised
(c) Paid up
Answer: (b) Authorised
In simple words: Authorized capital is the maximum amount of capital a company is legally permitted to issue to its shareholders, as stated in its Memorandum of Association.

🎯 Exam Tip: Remember that authorized capital is the ceiling, not necessarily the amount actually issued or paid-up by shareholders.

 

Question 3. ______ means shares are offered to the public.
(a) Rights Issue
(b) Private Placement
(c) Public Issue
Answer: (c) Public Issue
In simple words: A public issue is when a company offers its shares directly to the general public for subscription, inviting widespread investment.

🎯 Exam Tip: Public issues are a common way for companies to raise large amounts of capital from a broad investor base.

 

Question 4. Under ______ method, issue price of shares is based on bidding.
(a) Book Building
(b) Fixed Price
(c) Bonus Issue
Answer: (a) Book Building
In simple words: The Book Building method allows the price of shares to be determined by a bidding process where investors submit their bids within a price range.

🎯 Exam Tip: Book Building offers flexibility in pricing and helps gauge market demand before the final issue price is set.

 

Question 5. In ______ shares of a company are offered to the public for the first time.
(a) Further Public Offer
(b) Initial Public Offer
(c) Public Offer
Answer: (b) Initial Public Offer
In simple words: An Initial Public Offer (IPO) is the very first time a private company sells its shares to the public to raise capital.

🎯 Exam Tip: IPOs mark a significant milestone for a company, transitioning from private to public ownership.

 

Question 6. ______ is offered to existing equity shareholders.
(a) IPO
(b) ESOS
(c) Rights Issue
Answer: (c) Rights Issue
In simple words: A Rights Issue provides existing equity shareholders the preferential right to purchase new shares offered by the company, usually at a discounted price.

🎯 Exam Tip: Rights issues help existing shareholders maintain their proportionate ownership and allow companies to raise capital without diluting control significantly.

 

Question 7. Bonus shares are issued free of cost to ______.
(a) existing Equity shareholders
(b) existing employees
(c) Directors
Answer: (a) existing Equity shareholders
In simple words: Bonus shares are additional shares distributed to existing equity shareholders without any charge, typically from a company's accumulated profits or reserves.

🎯 Exam Tip: Bonus shares increase the number of shares held by investors, often seen as a reward, but do not immediately increase the company's capital.

 

Question 8. ______ are offered to permanent employees Directors and Officers of a company.
(a) Bonus Shares
(b) Rights Issue
(c) ESOS
Answer: (c) ESOS
In simple words: ESOS (Employee Stock Option Scheme) allows eligible employees, directors, and officers to purchase the company's shares at a predetermined price, usually below market value, as an incentive.

🎯 Exam Tip: ESOS aligns employee interests with company performance, encouraging long-term commitment and ownership.

 

Question 9. Under ______, a company offers its securities to a select group of persons not exceeding 200.
(a) Private Placement
(b) IPO
(c) Public Offer
Answer: (a) Private Placement
In simple words: Private Placement is an offering of securities to a limited, select group of investors rather than to the general public, typically up to 200 individuals.

🎯 Exam Tip: Private placements are often quicker and less expensive than public offerings, suitable for raising capital from specific institutional investors.

 

Question 10. The ______ have the power to allot shares.
(a) Director
(b) Board of Directors
(c) Company Secretary
Answer: (b) Board of Directors
In simple words: The Board of Directors holds the legal authority to allocate shares to applicants, as this decision affects the company's capital structure and ownership.

🎯 Exam Tip: Knowledge of the roles and responsibilities of company management, such as the Board of Directors, is essential in corporate governance.

 

Question 11. Letter of ______ is sent to applicants who have been given shares by the company.
(a) Regret
(b) Renunciation
(c) Allotment
Answer: (c) Allotment
In simple words: A Letter of Allotment is a formal document sent to successful applicants, confirming the number of shares allocated to them by the company.

🎯 Exam Tip: This letter serves as a crucial communication, notifying investors of their successful share application and the corresponding allocation.

 

Question 12. ______ is a proof of title to Shares.
(a) Share Certificate
(b) Register of Member
(c) Letter of Allotment
Answer: (a) Share Certificate
In simple words: A share certificate is a legal document issued by a company that provides prima facie evidence of ownership of a specified number of shares by a particular individual.

🎯 Exam Tip: While share certificates historically proved ownership, many shares are now held in dematerialized form electronically.

 

Question 13. The gap between two calls should not be less than ______.
(a) 14 days
(b) One month
(c) 21 days
Answer: (b) One month
In simple words: According to company law, there must be a minimum interval of one month between two consecutive calls for share payment to allow shareholders sufficient time to arrange funds.

🎯 Exam Tip: Adhering to call interval regulations is important for companies to ensure compliance and fair treatment of shareholders.

 

Question 14. Company can ______ shares on non-payment of calls.
(a) forfeit
(b) surrender
(c) allot
Answer: (a) forfeit
In simple words: If a shareholder fails to pay the outstanding call money on their shares, the company has the right to forfeit those shares, leading to their cancellation.

🎯 Exam Tip: Forfeiture is a serious consequence for non-payment and results in the loss of ownership for the defaulting shareholder.

 

Question 15. Voluntarily giving away one's share to another person is called as ______ of shares.
(a) Transfer
(b) Transmission
(c) Surrender
Answer: (a) Transfer
In simple words: Transfer of shares involves a shareholder voluntarily selling or gifting their shares to another person, changing the ownership through a formal process.

🎯 Exam Tip: Transfer requires documentation and registration with the company to legally change ownership, distinguishing it from involuntary transmission.

 

Question 16. ______ of shares takes place due to operation of law.
(a) Forfeiture
(b) Allotment
(c) Transmission
Answer: (c) Transmission
In simple words: Transmission of shares occurs automatically by legal mandate, typically due to events like the death, insolvency, or insanity of a shareholder, passing ownership to their legal heir or representative.

🎯 Exam Tip: Unlike transfer, transmission is an involuntary process that does not require consideration from the new owner.

1B. Match The Pairs.

 

Question (I).

Group 'A'		Group 'B'
a)	Death of member	1)	Forfeiture of shares
b)	Voluntary return of shares to company by member	2)	Book Building Method
c)	Price of shares mentioned in prospectus	3)	Offered to existing employees
d)	ESPS	4)	Surrender of shares
e)	Regret Letter	5)	Transmission of shares
		6)	Non-allotment of shares
		7)	Offered to existing Equity shareholders
		8)	Transfer of shares
		9)	Fixed price issue method
		10)	Allotment of shares

Answer:

Group 'A'	Group 'B'
(a) Death of member	(5) Transmission of shares
(b) Voluntary return of shares to company by member	(4) Surrender of shares
(c) Price of shares mentioned in prospectus	(9) Fixed price issue method
(d) ESPS	(3) Offered to existing employees
(e) Regret Letter	(6) Non-allotment of shares

In simple words: This matching exercise connects key terms related to shares with their correct definitions or associated concepts, illustrating fundamental aspects of share management.

🎯 Exam Tip: A clear understanding of these pairs helps in differentiating between various share-related concepts and their practical implications.

 

Question (II).

Group 'A'		Group 'B'
a)	Issued capital	1)	Non-payment of calls
b)	FPO	2)	Any issue after IPO
c)	Bonus shares	3)	Offered to existing employees
d)	Issued within two months of allotment of shares	4)	Capital offered to public to subscribe
e)	Forfeiture of shares	5)	Share certificate
		6)	First time issue of shares
		7)	Free shares issued to existing equity shareholders
		8)	Maximum capital a company can raise
		9)	Allotment Letter
		10)	Operation of law

Answer:

Group 'A'	Group 'B'
(a) Issued capital	(4) Capital offered to public to subscribe
(b) FPO	(2) Any issue after IPO
(c) Bonus shares	(7) Free shares issued to existing equity shareholder
(d) Issued within two months of allotment of shares	(5) Share Certificate
(e) Forfeiture of shares	(1) Non-payment of calls

In simple words: This matching exercise correctly links various types of capital and share-related processes with their accurate definitions, highlighting their financial and legal implications.

🎯 Exam Tip: Accurately matching terms with their descriptions demonstrates a strong grasp of company capital and share issuance procedures.

1C. Write A Word Or A Term Or A Phrase Which Can Substitute Each Of The Following Statements.

 

Question 1. Capital collected by way of issue of Equity and Preference shares.
Answer: Share Capital
In simple words: This refers to the total funds raised by a company through the sale of its ownership units, combining both ordinary and preferred stock.

🎯 Exam Tip: Understanding the components of share capital is foundational for analyzing a company's equity structure.

 

Question 2. Part of issued capital subscribed by investors.
Answer: Subscribed capital
In simple words: Subscribed capital is the portion of a company's issued shares that investors have agreed to buy and have committed to pay for.

🎯 Exam Tip: Subscribed capital indicates the extent of investor commitment towards the company's issued shares.

 

Question 3. Capital that will be collected only at the time of winding up of a company.
Answer: Reserve capital
In simple words: Reserve capital is a portion of a company's uncalled capital that the company specifically designates to be called up only in the event of its liquidation.

🎯 Exam Tip: This type of capital provides an additional layer of security for creditors during a company's winding-up process.

 

Question 4. Highest bid price in Book Building method.
Answer: Cap price
In simple words: In the book building process, the cap price is the maximum price at which investors can bid for shares, setting an upper limit for the issue price.

🎯 Exam Tip: The cap price is important for investors as it defines the highest possible cost they might incur for the shares.

 

Question 5. Offering of shares by a company to the public for the first time.
Answer: IPO
In simple words: An IPO (Initial Public Offer) is the first sale of stock by a private company to the public, marking its entry into the public market.

🎯 Exam Tip: IPOs are a significant event for a company, allowing it to raise substantial capital and gain public visibility.

 

Question 6. Subsequent issue of shares after an IPO.
Answer: FPO
In simple words: An FPO (Further Public Offer) is when a company that is already listed on a stock exchange issues new shares to the public after its initial public offering.

🎯 Exam Tip: FPOs allow already public companies to raise additional capital for expansion or debt reduction after their initial market debut.

 

Question 7. Pre-emptive right given to existing Equity shareholders to subscribe to new issue of shares by company.
Answer: Rights issue/shares
In simple words: A Rights Issue grants existing shareholders the first opportunity to buy newly issued shares, preserving their proportionate ownership in the company.

🎯 Exam Tip: This right helps prevent dilution of ownership for existing shareholders when a company issues new equity.

 

Question 8. It is also called as 'Capitalization of Profits'.
Answer: Bonus shares
In simple words: Capitalization of profits occurs when a company converts its accumulated reserves into shares and distributes them as bonus shares to existing shareholders, effectively turning profits into capital.

🎯 Exam Tip: Bonus shares increase the company's issued capital by utilizing accumulated profits, without any cash outflow from the company.

 

Question 9. Appropriation of shares to an applicant.
Answer: Allotment of shares
In simple words: Allotment of shares is the process by which a company formally assigns shares to applicants in response to their applications, making them shareholders.

🎯 Exam Tip: This is a crucial step in the share issue process, converting an application into actual share ownership.

 

Question 10. Committee set up to decide the formula for allotment of shares in case of over-subscription.
Answer: Allotment committee
In simple words: When a share issue is over-subscribed, an allotment committee is formed to fairly determine how shares will be distributed among the many applicants.

🎯 Exam Tip: The allotment committee ensures transparency and adherence to rules in allocating shares during high demand.

 

Question 11. Minimum amount to be collected from subscribers within thirty days of issue of prospectus.
Answer: Minimum subscription
In simple words: Minimum subscription is the smallest amount of capital a company must raise through its share issue to legally proceed with the allotment of shares.

🎯 Exam Tip: If the minimum subscription is not met, the company cannot allot shares and must refund application money, protecting investors.

 

Question 12. Document which is a prima facie evidence of ownership of certain shares of a company.
Answer: Share certificate
In simple words: A share certificate is a legal document that serves as preliminary proof of an individual's ownership of a specific number of shares in a company.

🎯 Exam Tip: While physical certificates are less common now with dematerialized shares, they still represent the fundamental concept of share ownership proof.

 

Question 13. Penal action taken by company on non-payment of calls.
Answer: Forfeiture of shares
In simple words: Forfeiture of shares is a punitive measure taken by a company to cancel shares when a shareholder fails to pay the required call money.

🎯 Exam Tip: This action results in the shareholder losing both their shares and any money already paid on them.

 

Question 14. Person to whom transferor is transferring the shares.
Answer: Transferee
In simple words: The transferee is the individual or entity who receives shares from a transferor, thereby becoming the new owner of those shares.

🎯 Exam Tip: Understanding the roles of transferor and transferee is key to comprehending the share transfer process.

 

Question 15. Transfer of shares due to operation of law.
Answer: Transmission of shares
In simple words: Transmission of shares refers to the involuntary transfer of share ownership due to legal events like the death or bankruptcy of a shareholder.

🎯 Exam Tip: This process happens automatically by law, unlike a voluntary transfer, and doesn't involve a sale.

1D. State Whether The Following Statements Are True Or False.

 

Question 1. Only fully paid-up shares can be forfeited.
Answer: False
In simple words: Shares can be forfeited if they are partly paid-up and the shareholder fails to pay subsequent calls, not just fully paid ones.

🎯 Exam Tip: Forfeiture primarily applies to partly paid shares where call money is outstanding, not fully paid shares.

 

Question 2. The member transferring shares is called a transferor.
Answer: True
In simple words: The person who initiates the transfer of shares and gives them away to another party is correctly identified as the transferor.

🎯 Exam Tip: The transferor is the seller or giver of shares in a transaction, while the transferee is the buyer or receiver.

 

Question 3. A share certificate is issued for partly or fully paid up shares.
Answer: True
In simple words: A company can issue a share certificate as evidence of ownership regardless of whether the shares are partly paid (meaning some money is still due) or fully paid by the shareholder.

🎯 Exam Tip: The share certificate signifies ownership, and the 'paid-up' status indicates the amount received by the company against those shares.

 

Question 4. Allotment of shares must be done within one month of receipt of application money.
Answer: False
In simple words: Allotment of shares is legally required to be completed within 60 days of receiving the application money, not just one month.

🎯 Exam Tip: Companies must adhere to the 60-day statutory limit for share allotment to comply with regulations.

 

Question 5. Sweat Equity shares are offered to Directors or employees of a company.
Answer: True
In simple words: Sweat equity shares are indeed issued to employees or directors as a reward for their significant non-cash contributions, such as intellectual property or hard work, to the company.

🎯 Exam Tip: This type of share issuance is a way to incentivize and retain key personnel by giving them an ownership stake in the company.

 

Question 6. Bonus Shares are issued at a discounted price to the Equity Shareholder.
Answer: False
In simple words: Bonus shares are issued completely free of cost to existing equity shareholders, not at a discounted price, as they are distributed from accumulated profits.

🎯 Exam Tip: The key characteristic of bonus shares is that they require no payment from the shareholders, differentiating them from other share issues.

 

Question 7. The floor price is the highest bid price under the Book Building method.
Answer: False
In simple words: In the Book Building method, the floor price is the minimum price within the specified price band, while the cap price is the highest bid price.

🎯 Exam Tip: Differentiating between floor price (minimum) and cap price (maximum) is essential for understanding the bidding range in Book Building.

 

Question 8. Calls not paid by shareholders are called calls in arrears.
Answer: True
In simple words: When a company requests shareholders to pay a portion of their share value (a 'call'), any unpaid amount by the due date is correctly termed 'calls in arrears'.

🎯 Exam Tip: Calls in arrears represent a liability for the shareholder and may lead to forfeiture of shares if left unpaid.

 

Question 9. Shares not offered to the public for subscription are called subscribed capital.
Answer: False
In simple words: Shares not offered to the public are known as 'unissued capital' or 'unsubscribed capital' if offered but not taken up, whereas 'subscribed capital' refers to shares that investors have agreed to buy.

🎯 Exam Tip: Clarify the terms: authorized, issued, subscribed, and unissued capital to avoid confusion in financial statements.

 

Question 10. Authorized capital is mentioned in the capital clause of the Memorandum of Association.
Answer: True
In simple words: The Memorandum of Association, a foundational document for a company, includes a capital clause that specifically states the maximum amount of share capital the company is authorized to raise.

🎯 Exam Tip: The Memorandum of Association outlines the fundamental objectives and capital structure of a company, making the authorized capital a key statutory detail.

1E. Find The Odd One.

 

Question 1. Authorized capital, Equity share capital, Issued capital, Paid-up Capital.
Answer: Equity share capital
In simple words: Equity share capital is a specific type of share, while Authorized, Issued, and Paid-up Capital represent different stages or measurements of a company's total capital structure.

🎯 Exam Tip: The other three terms describe categories of capital, whereas 'Equity share capital' denotes a particular class of shares within that capital.

 

Question 2. ESOS, ESPS, Rights Shares, Sweat Equity.
Answer: Rights Shares
In simple words: ESOS, ESPS, and Sweat Equity are all share schemes primarily aimed at employees or directors, whereas Rights Shares are offered to all existing shareholders.

🎯 Exam Tip: The key differentiator is the target recipient: employees/directors for the first three, and all existing shareholders for Rights Shares.

 

Question 3. Floor Price, Cap Price, Cut-off price, Face Value.
Answer: Face Value
In simple words: Floor Price, Cap Price, and Cut-off Price are terms related to the dynamic pricing mechanism in the Book Building method, while Face Value is a fixed nominal value assigned to a share.

🎯 Exam Tip: The first three terms relate to market-driven pricing during an issue, whereas face value is a static, pre-determined nominal value.

 

Question 4. Bonus Shares, Rights Shares, ESOS.
Answer: ESOS
In simple words: Bonus Shares and Rights Shares are offered to existing shareholders generally, while ESOS (Employee Stock Option Scheme) is specifically for employees, directors, and officers.

🎯 Exam Tip: Identify the primary beneficiary of each share offering type to find the odd one out; ESOS is distinct due to its employee-centric nature.

 

Question 5. Allotment of Shares, Forfeiture of shares, Surrender of shares.
Answer: Allotment of shares
In simple words: Allotment of shares is the process of issuing shares to applicants, while forfeiture and surrender are actions related to the cancellation or return of shares.

🎯 Exam Tip: Allotment is a positive action of creating shareholding, whereas forfeiture and surrender are negative actions related to ending it.

1F. Complete The Sentences.

 

Question 1. Share Capital refers to capital made up of Equity shares and _______.
Answer: Preference Share
In simple words: Share capital represents the total funds raised by a company from its owners, which typically includes both common equity and preferred equity.

🎯 Exam Tip: Remember the two main types of shares that constitute a company's share capital: equity and preference shares.

 

Question 2. Reserve capital is part of _______.
Answer: Uncalled Capital
In simple words: Reserve capital is a portion of a company's capital that has not yet been called up from shareholders and is specifically held for use during liquidation.

🎯 Exam Tip: Reserve capital is distinct from 'capital reserve' and can only be called upon in very specific circumstances, primarily winding up.

 

Question 3. Transfer of shares due to death, insolvency, or insanity of the member is called _______.
Answer: Transmission Shares
In simple words: When share ownership changes hands automatically due to legal circumstances like the shareholder's death or financial inability, it's known as transmission.

🎯 Exam Tip: Transmission is an involuntary transfer mandated by law, distinguishing it from a voluntary sale or gift of shares.

 

Question 4. The two parties involved in transfer of shares are transferor and _______.
Answer: transferee
In simple words: In any share transfer, the person giving up the shares is the transferor, and the person receiving them is the transferee.

🎯 Exam Tip: Clearly understanding these two roles is fundamental to comprehending the mechanics of share transfer documentation and process.

 

Question 5. Voluntarily giving up of shares by a member due to inability to pay calls is called as _______.
Answer: surrender of shares
In simple words: When a shareholder willingly returns their shares to the company, often because they cannot pay the outstanding call money, it's termed surrender of shares.

🎯 Exam Tip: Surrender is a voluntary act by the shareholder, whereas forfeiture is an involuntary action taken by the company.

 

Question 6. Company can forfeit only _______ paid shares.
Answer: partly
In simple words: A company can only forfeit shares if they are not fully paid up and the shareholder has failed to pay the requested installment (call money).

🎯 Exam Tip: Forfeiture is a legal remedy for non-payment on shares where the full face value has not yet been collected.

 

Question 7. In case the original Share Certificate is torn or mutilated, company can issue _______.
Answer: Duplicate Share Certificate
In simple words: If an original share certificate is damaged or lost, the company can provide a new, identical document to the shareholder, clearly marked as a duplicate.

🎯 Exam Tip: Issuing a duplicate share certificate ensures the shareholder continues to have proof of ownership even if the original is compromised.

 

Question 8. In case of transfer of shares, the company has to issue to the transferee a new share certificate within _______.
Answer: one month
In simple words: Following the successful registration of a share transfer, the company is legally required to issue a new share certificate to the new owner (transferee) within one month.

🎯 Exam Tip: This time limit ensures prompt updating of ownership records and issuance of proof of title to the new shareholder.

 

Question 9. Letter sent to applicants for informing them shares are allotted is called as _______.
Answer: Letter of Allotment
In simple words: This formal letter notifies applicants that their application for shares has been successful and that shares have been officially assigned to them.

🎯 Exam Tip: The Letter of Allotment is a critical document that legally confirms an applicant's transition to a shareholder.

 

Question 10. When applications received is more than the number of shares offered, it is called as _______.
Answer: Over Subscription
In simple words: Over-subscription occurs when the total number of shares applied for by investors exceeds the actual number of shares a company has offered for sale.

🎯 Exam Tip: Over-subscription indicates high demand for the company's shares, often leading to pro-rata allotment policies.

 

Question 11. In Book Building Method, the final price at which shares are offered to investors is called as _______.
Answer: Cut-off price
In simple words: The cut-off price is the ultimate issue price determined through the bidding process in Book Building, at which all successful applicants will receive shares.

🎯 Exam Tip: This price is finalized after assessing all bids and market demand, and it applies uniformly to all investors who are allotted shares.

 

Question 12. Shares issued free of cost to existing Equity shareholders is called as _______.
Answer: Bonus Shares
In simple words: Bonus Shares are additional shares distributed to current equity shareholders without any charge, typically funded by the company's accumulated reserves.

🎯 Exam Tip: Bonus shares increase a company's equity base by converting reserves into share capital, rewarding shareholders without cash outflow.

1G. Select The Correct Option From The Bracket.

 

Question 1.

Group 'A'		Group 'B'
a)	Public offer of shares	1)
b)		2)	Initial Public offer
c)	Rights Issue	3)
d)		4)	ESOS
e)	Operation of law	5)

(The first-time offer of shares, Shares offered to the public, Shares offered to exist, Equity shareholders, Shares offered to exist, employees, Transmission of shares)

Answer:

Group 'A'	Group 'B'
(a) Public offer of shares	(1) Shares offered to Public
(b) First time offer of shares	(2) Initial public offer
(c) Rights Issue	(3) Shares offered to existing equity share holders
(d) Shares offered to existing employees	(4) ESOS
(e) Operation of law	(5) Transmission of Shares

In simple words: This exercise correctly matches different types of share offerings and concepts with their appropriate descriptions, highlighting who the shares are offered to or the nature of the transaction.

🎯 Exam Tip: Understanding the target audience and legal basis for each type of share issue is vital for comprehensive knowledge of company finance.

1H. Answer In One Sentence.

 

Question 1. When does the transmission of shares take place?
Answer: Transmission of Shares takes place on death, insolvency, or insanity of the members.
In simple words: Share transmission occurs when ownership passes automatically by law due to the shareholder's demise, bankruptcy, or mental incapacity.

🎯 Exam Tip: Transmission is an involuntary transfer, contrasting with a voluntary share transfer which involves active participation from both parties.

 

Question 2. Name the two parties involved in the transfer of shares.
Answer: The transferor and Transferee are the two parties involved in the transfer of shares.
In simple words: The two key individuals in a share transfer are the transferor, who sells or gives the shares, and the transferee, who buys or receives them.

🎯 Exam Tip: Differentiating between the transferor (giver) and transferee (receiver) is fundamental to understanding the share transfer process.

 

Question 3. What is the time limit to issue a share certificate on allotment of shares?
Answer: Secretary should issue share certificate within two months of allotment of shares.
In simple words: After shares are allotted, the company secretary must ensure that the corresponding share certificates are issued to the new shareholders within two months.

🎯 Exam Tip: Adherence to this two-month deadline is a statutory compliance requirement for companies, providing shareholders with timely proof of ownership.

 

Question 4. What is the time limit for Filing a Return of Allotment with the Registrar on the allotment of shares?
Answer: Secretary has to file a 'Return of Allotment' with the Registrar of Companies within 30 days of allotment of shares.
In simple words: The company secretary is responsible for informing the Registrar of Companies about the details of share allotment by filing a 'Return of Allotment' within one month of the shares being allocated.

🎯 Exam Tip: This filing is a crucial legal step, ensuring public record of the company's updated capital structure and shareholder base.

Question 5. When can a company forfeit shares?
Answer: If a shareholder fails to pay calls on shares within a certain period company can forfeit shares.
In simple words: Forfeiture occurs when a shareholder doesn't pay their share calls after reminders, leading the company to cancel those shares.

🎯 Exam Tip: Understanding the conditions for forfeiture is key to explaining company actions related to unpaid share calls.

Question 6. What is a share certificate?
Answer: Share Certificate is a registered document issued by a company that is evidence of ownership of a specified number of shares of the company.
In simple words: A share certificate is a formal document proving who owns a specific number of shares in a company.

🎯 Exam Tip: Define its purpose and mention its legal significance as proof of ownership.

Question 7. What is the minimum application money to be collected by Company as per the Companies Act?
Answer: As per the companies act, the company should collect a minimum of 25% of the nominal value of shares.
In simple words: Companies must collect at least 25% of a share's face value as application money according to the Companies Act.

🎯 Exam Tip: Remember the specific percentage (25%) as this is a precise legal requirement.

Question 8. To whom should the prospectus be filed before issuing it to the public?
Answer: The prospectus should be filed with the Registrar of Companies before issuing it to the public.
In simple words: Before offering shares to the public, a company must submit its prospectus to the Registrar of Companies for registration.

🎯 Exam Tip: Highlight the role of the Registrar of Companies in the public issue process.

Question 9. What is meant by private placement?
Answer: When a company offers its securities to a select group of persons not exceeding 200, it is called Private Placement.
In simple words: Private placement involves offering company securities to a small, chosen group of up to 200 individuals, not the general public.

🎯 Exam Tip: Emphasize the limited number of persons and the exclusion of the general public for private placement.

Question 10. To whom is Sweat Equity shares offered by a company?
Answer: Sweat equity shares are issued to directors or employees of the company.
In simple words: Sweat equity shares are specifically issued to the company's directors or employees, often as a reward for their contribution.

🎯 Exam Tip: Identify the specific recipients (directors/employees) and their typical purpose (recognition/incentive).

Question 11. To whom can a company issue Bonus Shares?
Answer: The company can issue Bonus Shares to its existing equity shares.
In simple words: Bonus shares are issued to existing equity shareholders of a company as additional shares.

🎯 Exam Tip: Note that bonus shares are exclusively for existing equity shareholders.

Question 12. What is the subsequent issue after IPO called as?
Answer: The subsequent issue after IPO is called FPO.
In simple words: Any offer of shares to the public by a company after its initial public offering (IPO) is known as a Further Public Offer (FPO).

🎯 Exam Tip: Differentiate clearly between IPO (first issue) and FPO (subsequent issue).

Question 13. Name the method under which the issue price of shares is fixed through a bidding process.
Answer: Under the Book Building method, the issue price of shares is fixed through a bidding process.
In simple words: The Book Building method allows the company to determine the share price based on bids received from investors.

🎯 Exam Tip: Remember that "bidding process" is the key characteristic of the Book Building method.

Question 14. What is Public Issue?
Answer: Public issue or offer means offering the shares to the public. The company invites the public to subscribe to its shares by issuing a prospectus.
In simple words: A public issue is when a company offers its shares to the general public to raise capital, typically through a prospectus.

🎯 Exam Tip: The defining feature of a public issue is the invitation extended to the general public via a prospectus.

Question 15. Name the capital which is mentioned in the capital clause of the Memorandum of Association.
Answer: Authorized Capital is mentioned in the capital clause of the Memorandum of Association.
In simple words: The Authorized Capital, which is the maximum amount a company can raise, is specified in its Memorandum of Association.

🎯 Exam Tip: Connect "Authorized Capital" directly with the "capital clause" of the "Memorandum of Association".

1I. Correct The Underlined Words/And Rewrite The Following Sentences.

Question 1. Issued capital is the maximum capital that a company can raise by issuing shares.
Answer: Authorized capital is the maximum capital that a company can raise by issuing shares.
In simple words: The highest amount of capital a company is legally permitted to issue shares for is its authorized capital, not issued capital.

🎯 Exam Tip: Differentiate between issued capital (actual shares offered) and authorized capital (maximum allowed).

Question 2. Under the Fixed-Price issue method, the price of shares is fixed through a bidding process.
Answer: Under Book Building Method the price of shares is fixed through a bidding process.
In simple words: The Book Building method, not the Fixed-Price issue method, involves setting the share price based on a bidding process among investors.

🎯 Exam Tip: Clearly distinguish between fixed pricing (Fixed-Price Issue) and dynamic pricing through bidding (Book Building).

Question 3. FPO refers to offering shares to the public for the first time.
Answer: IPO refers to the offering of shares to the public for the first time.
In simple words: An Initial Public Offer (IPO) is the very first time a company sells its shares to the public, unlike an FPO which is a subsequent offer.

🎯 Exam Tip: Remember that "Initial" in IPO signifies the first-time offering to the public.

Question 4. Only Fully-paid up shares can be forfeited.
Answer: Only Partly paid-up shares can be forfeited.
In simple words: Forfeiture applies to shares where the full amount has not yet been paid, not to fully paid-up shares.

🎯 Exam Tip: A crucial condition for forfeiture is that the shares must be partly paid-up, meaning the shareholder owes money on them.

Question 5. Bonus shares are offered to existing employees of a company.
Answer: Bonus shares are offered to existing shareholders of a company.
In simple words: Bonus shares are distributed to current shareholders, not employees, as a reward from accumulated profits.

🎯 Exam Tip: Focus on "existing shareholders" as the correct recipients for bonus shares.

Question 6. The company enters into an underwriting agreement with the shareholders.
Answer: The company enters into an underwriting agreement with the underwriters.
In simple words: An underwriting agreement is made with underwriters, who guarantee the sale of shares, not directly with the shareholders.

🎯 Exam Tip: Identify "underwriters" as the correct party for an underwriting agreement.

Question 7. Letter of Allotment is sent to applicants when no shares are allotted to them.
Answer: Letter of Regret is sent to applicants when no shares are allotted to them.
In simple words: If an applicant doesn't receive shares, they get a Letter of Regret, while a Letter of Allotment is for those who are granted shares.

🎯 Exam Tip: Understand the distinction between a "Letter of Allotment" (shares granted) and a "Letter of Regret" (shares not granted).

Question 7. IPO refers to the offering of shares to the public for the second time.
Answer: FPO refers to offering shares to the public for the second time.
In simple words: A Further Public Offer (FPO) is when a company offers shares to the public after its initial public offering (IPO).

🎯 Exam Tip: Differentiate between IPO (first-time issue) and FPO (subsequent issue).

Question 8. A duplicate share certificate must be issued within one month from the date of application.
Answer: A duplicate share certificate must be issued within three months from the date of application.
In simple words: Companies are legally required to issue a duplicate share certificate within three months of receiving the application.

🎯 Exam Tip: Remember the specific time limit of "three months" for issuing duplicate share certificates.

Question 9. Call money can not exceed 5% of the nominal value of shares.
Answer: Call money can not exceed 25% of the nominal value of shares.
In simple words: Each call for unpaid share capital cannot be more than 25% of the share's face value.

🎯 Exam Tip: Know the maximum limit (25%) for a single call on shares according to company regulations.

1J. Arrange In Proper Order.

Question 1.
(a) Forfeiture of shares
(b) Calls on shares
(c) Allotment of shares
Answer:
(a) Allotment of shares
(b) Calls on shares
(c) forfeiture of shares
In simple words: The correct sequence of events is allotting shares, then making calls for payments, and finally, forfeiting shares if payments are not made.

🎯 Exam Tip: Understanding the typical lifecycle of a share issue from allotment to potential forfeiture helps in sequencing these steps.

Question 2.
(a) Share certificate
(b) Allotment letter
(c) Application from
Answer:
(a) Application form
(b) Allotment letter
(c) share certificate
In simple words: The process starts with an application, followed by an allotment letter, and concludes with the issuance of a share certificate.

🎯 Exam Tip: Visualize the chronological flow of documents a shareholder receives during the share issue process.

Question 3.
(a) Return of allotment
(b) Application form
(c) Minimum Subscription
Answer:
(a) Minimum subscription
(b) Application form
(c) Return of allocation
In simple words: The process typically involves receiving application forms, ensuring minimum subscription, and then filing the return of allotment.

🎯 Exam Tip: Recognize the order of these key regulatory steps in the share allotment process.

2. Explain The Following Terms/Concepts.

Question 1. Transmission of shares.
Answer:

• Transmission of shares means the transfer of the title of shares by the operation of law.
• When the shares of a member are automatically transferred to another person on the death, insolvency, or insanity of a member it is called Transmission of shares.
• Transmission of shares is an involuntary action.
• There is only one party i.e., a legal heir who indicates the process of transmission.
• The legal heir or official receiver need not pay any consideration for the shares.
• There is no need to submit an Instrument of Transfer of pay stamp duty.

In simple words: Transmission of shares is the involuntary transfer of share ownership due to legal events like death or insolvency, where the legal heir or representative automatically acquires the shares without payment or formal transfer deed.

🎯 Exam Tip: Focus on "involuntary transfer" and "operation of law" as core concepts for transmission, distinguishing it from transfer by choice.

Question 2. Bonus shares
Answer:

• Bonus Shares are shares distributed by a company to its current shareholders as fully paid shares free of charge.
• The Bonus Shares are given to the existing equity shareholders according to their existing proportion of equity shareholdings.

In simple words: Bonus shares are extra shares given to existing shareholders for free, proportionate to their current holdings, using the company's accumulated profits.

🎯 Exam Tip: Highlight "free of charge" and "existing equity shareholders" as defining characteristics of bonus shares.

Question 3. Allotment of Shares
Answer:

• Allotment means the distribution of shares among the applicants. It means giving shares to share applicants of to specific persons with whom the company has entered into the contract.
• Allotment of shares is a procedure in which shares are distributed to those applicants who have submitted a written application along with the application money.

In simple words: Allotment of shares is the process where a company formally distributes newly issued shares to applicants who have submitted applications and paid the initial money, based on a contract.

🎯 Exam Tip: Emphasize that allotment is the formal distribution of shares following valid applications and adherence to company regulations.

Question 4. Employees Stock Option Scheme
Answer: An employee stock option plan is an employee benefits scheme under which the company encourages its employees to acquire ownership in the form of shares. Under this scheme, permanent employees, Directors or Officers of the Company or its holding company or subsidiary company are offered the benefit or right to purchase the equity shares of the company at a future date at a predetermined price.
In simple words: ESOS allows eligible employees and directors to buy company shares at a pre-set price on a future date, encouraging ownership and aligning their interests with the company's growth.

🎯 Exam Tip: Key elements to mention are "employees/directors", "right to purchase", "future date", and "predetermined price".

Question 5. Surrender of Shares
Answer:

• This means the voluntary return of shares by the member to the company for cancellation.
• Surrender of shares is allowed only if there is no other option but to forfeit the shares.
• Only partly paid-up shares can be surrendered.
• Surrendered shares can be surrendered when a company provides for such surrender of shares.

In simple words: Surrender of shares is a voluntary act by a shareholder to return partly paid-up shares to the company for cancellation, typically when forfeiture is the only alternative.

🎯 Exam Tip: Highlight "voluntary return" and "partly paid-up shares" as core components of share surrender, often as an alternative to forfeiture.

Question 6. Sweat equity shares
Answer: These are shares issued by a company to its directors or employees at a discount or for consideration other than cash. It is one of the modes of making share-based payments to employees. It is issued in recognition of their valuable contribution to the prosperity of the company.
In simple words: Sweat equity shares are issued to directors or employees, often at a discount or for non-cash contributions, to recognize their significant input to the company's success.

🎯 Exam Tip: Emphasize that sweat equity shares are for "directors or employees" and are given for "non-cash consideration" or "at a discount" in recognition of their work.

Question 7. Share Certificate
Answer: A Share certificate refers to documents that are issued by a company evidencing that a person named in such certificate is the owner of the shares of the company stated in the share certificate. Share certificate has to be issued under the common seal of the company. It should be issued within 2 months from the date of allotment against the allotment letter.
In simple words: A share certificate is a legal document, under the company's seal, that proves a person's ownership of a specific number of shares, issued typically within two months of allotment.

🎯 Exam Tip: Define a share certificate as a legal proof of ownership, issued under the company's seal, with a specific time limit for issuance.

Question 8. Authorized Capital
Answer:

• The Authorized capital is the maximum amount of capital that a company can raise through the issue of shares to the shareholders.
• The Authorized capital of a company is also called Registered Capital or Nominal Capital.
• Authorized capital is the maximum capital that is authorized by the company's memorandum of Association.

In simple words: Authorized capital is the maximum total amount of share capital a company is legally permitted to issue, as stated in its Memorandum of Association.

🎯 Exam Tip: Understand that authorized capital represents the upper limit for a company's share issuance and is also known as nominal or registered capital.

Question 9. Forfeiture of shares
Answer: If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending many reminders the company may forfeit its shares. Thus forfeiture of shares means cancellation of shares.
In simple words: Forfeiture of shares is the company's act of cancelling a shareholder's shares due to their failure to pay required calls, even after reminders.

🎯 Exam Tip: Emphasize "cancellation of shares" and "non-payment of calls" as the core elements of forfeiture.

Question 10. Paid-up capital
Answer:

• Paid-up capital is the amount of money a company has received from shareholders in exchange for shares.
• It is the total amount of money paid up by the shareholders when the company has called up or demanded them to pay.
• The paid-up capital can be equal to or less than the authorized capital.

In simple words: Paid-up capital is the actual amount of money received by the company from its shareholders for the shares they own, which can be less than the total authorized capital.

🎯 Exam Tip: Differentiate paid-up capital (actual money received) from authorized capital (maximum allowed) and called-up capital (amount demanded).

Question 11. Calls on Shares
Answer:

• Whenever a company issue shares, the company may ask shareholders to pay the value of shares in installment which is known as calls on shares.
• The company can demand part or full amount of the balance amount of unpaid shares.

In simple words: Calls on shares refer to the company's demand for shareholders to pay remaining unpaid amounts on their partly paid shares, collected in installments.

🎯 Exam Tip: Understand that calls are made to collect the balance unpaid amount on shares, usually in installments.

Question 12. Subscribed Capital.
Answer:

• Subscribed share capital is that part of issued share capital for which a company has positively received a subscription from the investor.
• It is a part of Issued Capital that has been subscribed by investors or purchased by the general public.

In simple words: Subscribed capital is the portion of shares issued by a company that investors have actually agreed to buy and committed to paying for.

🎯 Exam Tip: Remember that subscribed capital is the segment of issued capital that investors have formally agreed to purchase.

Question 13. Minimum Subscription
Answer: Minimum subscription means a minimum amount decided by the ROC which should be build-up by the company by issuing securities to the general public. If the company failed in minimum subscription then it has to return the entire amount back to the applicants.
In simple words: Minimum subscription is the smallest amount of capital a company must raise through a share issue to legally proceed with allotment; failure to meet it requires refunding application money.

🎯 Exam Tip: Recognize minimum subscription as a critical regulatory threshold for a public issue, ensuring adequate funds before allotment.

Question 14. Transfer of shares
Answer:

• Transfer of shares means the transfer of ownership of the shares from one person to another against consideration.
• Transfer of shares is effected by removing the name of the existing shareholders (transferor) from the register of members and inserting the name of the new member (transferee).
• Transfer of shares is a voluntary process of transferring shares by a member of a company.

In simple words: Transfer of shares is the voluntary process where a shareholder sells or gives their shares to another person, legally changing ownership in the company's records.

🎯 Exam Tip: Key aspects are "voluntary process," "change of ownership," and "against consideration" (usually money).

Question 15. Initial Public Offer (IPO)
Answer: The initial public offering is the sale of equity shares to the public first time in order to raise capital. This is the most popular and common method used by companies. The company invites the public to subscribe to its shares by issuing prospects.
In simple words: An IPO is a company's first-time sale of shares to the general public to raise capital, done by inviting subscriptions through a prospectus.

🎯 Exam Tip: Remember "first time sale" and "to the public" as defining features of an IPO.

Question 16. Blank Transfer
Answer:

• The Blank transfer means the sale or transfer of securities in which the name of the buyer or transferee is not recorded.
• When a member signs the Instrument of transfer without filling in the name of the transferee and hands it over to the transferee with the share certificate it is called 'Blank Transfer.'
• The blank transfer enables easy to purchase and sale of shares as the blank transfer form can be sold any number of times.
• The intermediate buyers need not pay stamp duty.

In simple words: A blank transfer occurs when a share transfer form is signed by the seller but the buyer's name is left empty, allowing the shares to be easily re-transferred without re-registration or multiple stamp duties.

🎯 Exam Tip: Focus on the "transferee's name not recorded" and its benefit of "easy re-sale" without immediate registration or repeated stamp duty.

Question 17. Further Public Offer (FPO)
Answer: It is also called a follow-on public offer. When the company issue shares to the public after IPO, it is called a further public offer. Thus every issue of shares by a listed company after its IPO is called an FPO. FPO leads to an increase in the subscribed capital of the company.
In simple words: An FPO, or Follow-on Public Offer, is a subsequent issue of shares by a company to the public after it has already completed an IPO, thereby increasing its capital.

🎯 Exam Tip: Contrast FPO with IPO by highlighting that FPO is a "subsequent" or "follow-on" offer by an already listed company.

Question 18. Forged Transfer
Answer:

• An instrument on which if the signature of the transferor is forged is called forged transfer.
• It is a null transfer and does not counter any title.
• As the signature of the transferor is forged, the company should not register such transfer of shares.

In simple words: A forged transfer is a share transfer document with a fake signature of the original owner, rendering the transfer invalid and preventing the company from registering it.

🎯 Exam Tip: Emphasize "forged signature" and "null transfer" as the key characteristics, meaning it conveys no legal title.

Question 19. Rights issue
Answer: A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. A rights issue is a way by which a listed company can raise additional capital.
In simple words: A rights issue offers existing shareholders the chance to buy additional new shares in the company, proportionate to their current holdings, to raise more capital.

🎯 Exam Tip: Note that rights issues are an "invitation" specifically to "existing shareholders" to "purchase additional shares".

Question 20. Private Placement
Answer: When a company offers its securities to a selected group of persons not exceeding 200, it is called private placement. Here securities are not offered to the general public.
In simple words: Private placement involves offering securities to a small, chosen group of up to 200 individuals, bypassing the general public.

🎯 Exam Tip: Key features are "selected group," "not exceeding 200 persons," and "not offered to the general public."

5. Study The Following Cases And Express Your Opinion.

1. Eva Ltd. Company's capital structure is made up of 1,00,000 equity shares having a face value of Rs. 10/- each. The company has offered to the public 40,000 equity shares and out of this, the public has subscribed for 30,000 equity shares. State the following in rupees-

Question (a). Authorized capital
Answer: The authorized capital is Rs. 10,00,000 (1,00,000 equity shares × Rs. 10/- each)
In simple words: The maximum capital Eva Ltd. is permitted to raise is Rs. 10,00,000, calculated by multiplying total shares by face value.

🎯 Exam Tip: Authorized capital is the total number of shares multiplied by their face value, representing the maximum allowed capital.

Question (b). Subscribed capital
Answer: The subscribed capital is Rs. 3,00,000 (30,000 equity shares × Rs. 10/- each)
In simple words: The subscribed capital for Eva Ltd. is Rs. 3,00,000, representing the value of shares that the public has agreed to purchase.

🎯 Exam Tip: Subscribed capital is the portion of offered shares for which investors have actually applied and committed to paying.

Question (c). Issued capital
Answer: The issued capital is Rs. 4,00,000 (40,000 equity shares × Rs. 10/- each)
In simple words: Eva Ltd.'s issued capital is Rs. 4,00,000, which is the value of shares the company offered to the public for subscription.

🎯 Exam Tip: Issued capital refers to the total value of shares that the company has offered to the public from its authorized capital.

2. TRI. Ltd company is a newly incorporated public company and wants to raise share capital by issuing equity shares in the market. The board of directors is considering various options for this. Advise the board on the following matters:

Question (a). What should the company offer – IPO or FPO?
Answer: The Company should offer IPO.
In simple words: As a newly incorporated public company, TRI. Ltd should opt for an Initial Public Offer (IPO) to raise capital for the first time.

🎯 Exam Tip: For a new public company raising capital initially, IPO is the appropriate method; FPO is for subsequent issues by listed companies.

Question (b). Can the company offer Bonus shares to raise its capital?
Answer: The company cannot offer Bonus Shares. Bonus Shares are given out of only accumulated capital or reserves only.
In simple words: No, TRI. Ltd cannot offer bonus shares to raise capital because bonus shares are distributed free from accumulated profits to existing shareholders, not sold to generate new funds.

🎯 Exam Tip: Remember that bonus shares are a capitalization of reserves, not a method to raise fresh capital from external sources.

Question (c). Can the company enter into an underwriting Agreement?
Answer: Yes. The company can enter into an Underwriting Agreement. The underwriters assure the company to take up the unsold shares so that company can be able to raise the minimum subscription.
In simple words: Yes, TRI. Ltd can use an underwriting agreement to ensure that its share issue meets the minimum subscription requirement, with underwriters guaranteeing to buy any unsold shares.

🎯 Exam Tip: Underwriting agreements are a common practice for new companies to mitigate the risk of not raising minimum subscription.

3. Silver Itd. The company has recently come out with its public offer through FPO. Their issue was over-subscribed. The board of directors now wants to start the allotment process.

Question (a). Should the company set up an allotment committee?
Answer: Yes. The company should set up an allotment committee as the issue is over-subscribed so the Board has to set up an allotment committee.
In simple words: Yes, Silver Ltd should establish an allotment committee because its over-subscribed FPO requires a structured and fair process for distributing shares.

🎯 Exam Tip: An allotment committee is crucial for fair and transparent share distribution, especially in over-subscribed issues.

Question (b). How should the company information to whom the company is allotting shares?
Answer: The company should inform the applicants through a letter of allotment for allotting shares.
In simple words: The company must notify successful applicants of their share allotment by sending them a formal Letter of Allotment.

🎯 Exam Tip: The Letter of Allotment is the official communication confirming the successful allocation of shares to an applicant.

Question (c). Within what period should the company issue a share certificate?
Answer: The company should issue share certificates within two months from the date of allotment.
In simple words: The company is required to issue share certificates within two months after the date when the shares were formally allotted.

🎯 Exam Tip: Remember the statutory timeline of "two months" for issuing share certificates after allotment.

4. Red Tubes Ltd. has made a demand on its shareholders to pay the balance unpaid amount of 20/- per share (having a face value of Rs. 100) held by them. The company has sent letters asking the shareholders to pay the money to its Bankers within the specified time.

Question (a). Are the shareholders liable to pay 20/- for the shares held by them?
Answer: Yes. The shareholders are liable to pay 20 for the shares held by them. When a company demands the shareholder to pay a part or full amount of the balance amount unpaid on shares it is called 'calls on shares'.
In simple words: Yes, shareholders are liable to pay the Rs. 20/- as it constitutes a "call on shares," which is the company's demand for unpaid capital.

🎯 Exam Tip: Shareholders are legally obligated to pay calls on shares when demanded by the company, provided they hold partly paid-up shares.

Question (b). Name the letter sent by the company to its shareholders asking them to pay 20/-
Answer: The company will send a 'Call Letter' to its shareholders for asking them to pay Rs. 20.
In simple words: The company sends a 'Call Letter' to its shareholders to formally request the payment of the outstanding Rs. 20/- per share.

🎯 Exam Tip: A "Call Letter" is the specific document used by a company to formally request payment of unpaid call money from shareholders.

Question (c). What happens if the shareholders fail to pay the money within a specific time?
Answer: If a shareholder fails to pay call money within the specified time, the company can forfeit the shares.
In simple words: If shareholders don't pay the call money by the deadline, the company has the right to forfeit their shares, leading to cancellation of ownership.

🎯 Exam Tip: Failure to pay call money is a serious default that can result in the forfeiture of shares by the company.

5. X owns 100 shares and Y owns 500 shares of RED tubes. The company has asked all its shareholders to pay the balance unpaid amount of rupees 20. X pays full money demanded by the company and Y failed to pay the money due to poor financial condition.

Question (a). Can the company forfeit the shares of Y?
Answer: Yes. The company can forfeit the shares of 'Y' as he failed to pay calls on shares within a certain period.
In simple words: Yes, the company can forfeit Y's shares because Y failed to pay the demanded call money within the specified timeframe.

🎯 Exam Tip: Forfeiture is permissible when a shareholder defaults on call payments, regardless of their financial circumstances.

Question (b). Can the company forfeit the shares of X?
Answer: The company cannot forfeit the shares of 'X' as he paid the full amount of shares. Only partly paid-up shares can be forfeited.
In simple words: No, X's shares cannot be forfeited because X has paid the full amount, and only partly paid-up shares are subject to forfeiture.

🎯 Exam Tip: A key rule for forfeiture is that it only applies to shares that are not fully paid up by the shareholder.

Question (c). Can X transfer his shares?
Answer: Yes. X can transfer his shares by filling Instrument of transfer.
In simple words: Yes, X can transfer his shares by completing the required Instrument of Transfer since he has fulfilled his payment obligations.

🎯 Exam Tip: A shareholder who has fully paid for their shares generally has the right to transfer them as per the company's articles and legal procedures.

4. Distinguish Between The Following.

Question 1. Initial Public Offer and Further Public Offer
Answer:

Points	Initial Public offer	Further Public offer
1. Meaning	IPO refers to an offer of Securities by an unlisted public company to the public for the first time.	FPO means an offer of securities by a listed public company to the public to raise subsequent capital.
2. Raising Money	Raising Money for the first time from the public.	Before FPO Company has already raised money through an IPO.
3. When Issued	It is usually issued by an existing company that wants to raise capital from the public for the first time.	It is usually issued by a listed public company when it wants to raise further capital from the public.
4. Order of Issue	IPO precedes FPO. IPO is the first time sale of shares to the public.	FPO is always done after IPO. FPO is the second or subsequent sale of shares to the public.
5. Listing	The company has to get itself listed for the first time before issuing IPO.	A company making an FPO is already a listed company.
6. Risk	It is very risky for the investor as he cannot predict the company's performance.	It is less risky for the investor as he has an idea of the company's past performance and can judge its future performance.

In simple words: IPO (Initial Public Offer) is a company's first public share sale, typically by unlisted companies to raise initial capital, making it riskier for investors; FPO (Further Public Offer) is a subsequent share sale by an already listed company to raise additional capital, offering more historical performance data to investors.

🎯 Exam Tip: Focus on the chronological order (IPO first, then FPO), listing status of the company, and the associated investor risk for clear distinction.

Question 2. Fixed Price Issue Method and Book Building Method
Answer:

Points	Fixed Price Issue Method	Book Building Method
1. Meaning	Under this method, the issue price of shares is mentioned in the prospectus and investors have to buy shares at that price only.	Under this method, the issue price is determined by a bidding process.
2. Price of Shares	The exact price of shares is known in advance and it is mentioned in the prospectus.	The price of shares is not known in advance only the minimum price and maximum price at which the company is willing to sell the shares is known in advance.
3. Prospectus	The company has to issue a prospectus and it contains the details of the price at which shares are offered and the total number of shares offered by the company.	The company issues a Red Herring Prospectus. It contains only the price band and the total size of the issue.
4. Determination of Demand	The company comes to know the public demand for its shares only after the closure of the issue.	The company comes to know the public demand for its shares every day. The bids are registered in the book .everyday till the closure of the issue.
5. Payment of Application Money	Application money or entire money has to be paid by the investor at the time of submitting the application for shares.	Only application money has to be paid at the time of bidding. Money will be collected only after the issue price has been fixed.
6. When Used	It can be used for any issue i.e., Public issues, Rights Issues, FSOS, etc.	It is usually used in public issues i.e., IPO and FPO

In simple words: The Fixed Price Issue Method sets a fixed share price in advance, requiring full payment with the application, while the Book Building Method determines the price through a bidding process within a price band, with final payment after price discovery.

🎯 Exam Tip: Distinguish these methods by how the share price is determined (fixed vs. bidding), when demand is known (after closure vs. daily), and the application money payment schedule.

 

Question 3.
Right shares and Bonus shares
Answer:

Points	Rights Shares	Bonus Shares
1. Meaning	In the rights issues, shares are offered to the existing equity shareholders.	Bonus shares are issued to the existing equity shareholders free of cost.
2. Payment	Subscribers have to pay for the Right Shares.	Bonus Shares are issued free of cost to the shareholders.

In simple words: Rights shares allow existing shareholders to buy new shares at a special price, while Bonus shares are free shares given to existing shareholders from the company's accumulated profits. Rights require payment, whereas Bonus shares do not.

🎯 Exam Tip: Focus on the core difference: rights shares involve payment from existing shareholders to raise capital, while bonus shares are free distributions from accumulated profits. Clarity on these points is key for scoring.

 

Question 4.
Transfer of shares and Transmission of shares
Answer:

Points	Transfer of shares	Transmission of shares
1. Meaning	Transfer of shares means the transfer of ownership of shares from one person to another by entering into a contract.	It means the transfer of ownership of a member's shares to his legal representative due to the operation of law. It takes place on the death of insolvency or insanity of the members.
2. When Done	It is done when the member wants to sell his shares or give his shares as a gift.	It is done when the member dies or becomes insolvent or suffering from insanity.
3. Nature of Action	It is a voluntary action taken by the member.	It is an involuntary action. It is performed by operation of law.
4. Parties Involved	In the transfer of shares, there are two parties involved - the member who is called as transferor and the buyer who is called as transferee.	There is only one party e.g., the nominee of the members in case of death of the member or the legal representative.
5. Instrument of transfer	Transfer requires an Instrument of transfer.	No instrument of transfer is needed.
6. Initiated by	The transferor initiates the transfer process.	Legal representative or official receiver initiates the process of transmission.
7. Consideration	Transfer of shares is done often by the member to receiving some consideration e.g., money.	In the transmission of shares, no consideration is involved.
8. Liability	The liability of the transferor ends after the shares are transferred.	Original liability of the member continues in case of transmission of shares.
9. Stamp duty	Stamp duty as per the market value of shares has to be paid.	No stamp duty is to be paid.

In simple words: Transfer of shares is a voluntary process where a shareholder sells or gifts their shares, involving two parties and consideration. Transmission of shares is an involuntary transfer due to death or insolvency, involving only the legal heir and no consideration.

🎯 Exam Tip: Differentiate between voluntary (transfer) and involuntary (transmission) actions. Also, remember the presence/absence of consideration and stamp duty for each type.

 

5. Answer in brief.

 

Question 1.
What is Book Building Method?
Answer:
• The method of offering shares by providing a price range is called the book building method.
• In the book, building method shares will be sold by the bidding process.
• The company issues a Red Herring Prospectus which contains a price range or price band and as the investor to bid on it.
• In this method, the company doesn't fix up a particular price for the share but gives a price range e.g., Rs. 80 to Rs. 100.
In simple words: Book Building is a method where a company offers shares by setting a price range, allowing investors to bid. The final issue price is determined by the demand received through this bidding process, not a fixed upfront price.

🎯 Exam Tip: Highlight that Book Building allows price discovery through investor bids within a set price band, unlike fixed price issues where the price is predetermined.

 

Question 2.
State the provisions for the Rights issue.
Answer:
• When a company wants to issue further capital it can issue shares to its existing equity shareholders which are called Rights Issue.
• According to the Companies Act, 2013 company has to fulfill certain provisions for making a Rights Issue.
• the provisions are
• Rights shares are sold to the existing shareholders at a price that is lesser than its market price.
• A company has to send a 'Letter of offer' to the existing shareholders at the time of issuing Rights Shares.
• The letter of offer shall mention
• The number of shares offered.
• The period of offer i.e., offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of offer.
• The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
In simple words: Rights Issue allows a company to raise more capital by offering new shares to its existing equity shareholders at a preferential price. This offer is conveyed through a 'Letter of Offer' specifying the number of shares, offer period (15-30 days), and must comply with the Companies Act 2013.

🎯 Exam Tip: Key provisions include offering shares to existing equity shareholders, the issue price being lower than market price, and the mandatory 'Letter of Offer' with specific details and validity period.

 

• When bidding for the shares, investors have to decide at which price they would like to bid for the shares e.g. 80, 90, Rs. 100.
• The lower price band (80) is known as the floor price and the highest price band (100) is known as the cap price. The final price at which shares are offered to investors is called the cut-off price.
• Board on the demand and supply of the shares, decides the final price is to be fixed.
• Investors can bid on any number of shares that they are willing to buy at a given price band. Such Bidding is kept open for 5 days.
• The bids with application money are to be submitted to the Lead Merchant Bankers called 'Book Runners' who enter the bids in a book.
• After bidding, the company fixes a cut-off price at which shares on offer can be sold.
• The company issues a prospectus that contains the final price.
• Book Building method is used for public issues i.e., IPO and FPO.
If a shareholder does not respond to the Rights Issue offer within a given time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new Investors.

 

Question 3.
State the provisions related to Bonus Shares.
Answer:
• Bonus Shares are fully paid shares issued free of cost to the existing equity shareholders.
• According to Companies Act 2013, every company has to follow certain provisions to issue Bonus Shares.
Following are the provisions related to Bonus Issue-
• A company can issue Bonus Shares only out of
• Free reserves or
• Securities Premium Account
• Capital Redemption Reserve Account
• A company cannot issue Bonus Shares only out of Reserves credited by the Revaluation of Assets.
• It also cannot issue Bonus Shares instead of paying dividend.
• Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
• Bonus shares are fully paid shares.
• Shareholders cannot renounce i.e give away their Bonus Shares to another person.
• There is no minimum subscription to be collected.
In simple words: Bonus shares are additional, fully paid-up shares given free to existing equity shareholders, funded from a company's accumulated profits or reserves, excluding revaluation reserves. Once announced, the offer cannot be withdrawn, and these shares cannot be renounced.

🎯 Exam Tip: Emphasize that bonus shares are free, issued to existing equity shareholders from accumulated profits (not revaluation reserves), and are non-renounceable. Compliance with Companies Act 2013 is crucial.

 

Question 4.
State the general principles/rules for allotment of shares.
Answer:
Every company issuing shares has to follow rules or general principles given by the Companies Act 2013 as follows:
• Proper Authority: The Board of Directors or the allotment committee set up by the Board has the authority to allot shares.
• Allotment must be against application only: A Company can allot shares only if it has received a written application for shares from the applicant. Allotment of shares cannot take place on the basis of an oral request.
• Reasonable time: As per the Act, allotment shall be done within 60 days of receipt of application money. Allotment can be made from the fifth day from the date of issue of prospectus.
• Absolute and Unconditional allotment: Shares should be allotted on the same terms as stated in the prospectus and application form. No change in terms of allotment or new conditions can be added at the time of allotment.
• Communication: Company has to inform the applicant that shares have been allotted, to him by sending a letter of allotment or allotment advice. The letter gives details of a number of shares allotted amount of Allotment money to be paid etc.
• Allotment should not be in Contravention (Violation) of any other laws: A company cannot allot shares by violating or contradicting any other existing laws e.g., shares cannot be allotted to a minor, of a country where a company operates its business.
In simple words: Allotment of shares must follow strict legal principles: it requires a proper authority (Board/committee), a written application, must be completed within a reasonable timeframe (60 days from application money receipt), be absolute and unconditional, and formally communicated to the applicant without violating any other laws.

🎯 Exam Tip: Remember the five key principles for share allotment: Proper Authority, Application-based, Timely, Unconditional, and Legal Compliance. Communication of allotment is also essential.

 

Question 5.
State the contents of the Share Certificate.
Answer:
A Share certificate refers to a document which is issued by a company evidencing that a person named in such certificate is the owner of the shares of the company stated in the share certificate.
Share certificate has to be issued under the common seal of the company. It should be issued within 2 months from the date of allotment against the allotment letter.
Contents of Share Certificate:
Share Certificate should be in Form SH - 1 as prescribed under Companies (Share Capital and Debenture) Rules 2014.
• Name of the company with Registered office address
• Folio Number
• Share Certificate Number
• Name of Member
• Nature of share number of shares and a distinctive number of shares.
• Amount paid on shares
• Common seal, if any, and signature of two directors and company secretary.
In simple words: A Share Certificate is a formal document proving ownership of company shares, issued within two months of allotment. It must include company details, folio and certificate numbers, member's name, share specifics (type, number, distinctive numbers), amount paid, and be sealed and signed by authorized company officials.

🎯 Exam Tip: Focus on the legal requirement (Form SH-1), key identification details (company name, member, share type/number), financial info (amount paid), and authentication (common seal, signatures).

 

Question 6.
What are the effects of forfeiture of shares?
Answer:
If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending many reminders the company may forfeit his shares. Thus forfeiture of shares means cancellation of shares.
Effects of Forfeiture
• Cessation of Membership: On forfeiture, a member ceases to be a member of a company and loses all membership rights. The member's name is removed from the Register of Members.
• Liability of Member: A member is liable for unpaid calls even after forfeiture of shares. The liability ceases only when the company reissues the forfeited shares.
• Liquidation of Company: If a company goes in for liquidation within one year of forfeiture of shares, the member whose shares have been forfeited is liable to pay the calls as a past member.
In simple words: Forfeiture of shares occurs when a shareholder fails to pay calls on shares, leading to cancellation of their shares. This results in loss of membership rights, removal from the Register of Members, and potential liability for unpaid calls, especially if the company liquidates within a year.

🎯 Exam Tip: Remember the three main effects: loss of membership and rights, continued liability for unpaid calls until reissue, and liability as a past member during company liquidation within one year.

 

Question 7.
When can the Board of Directors refuse the transfer of shares?
Answer:
• Board of Directors can refuse transfer of shares as they have authority to refuse registration of transfer of shares.
• A notice of refusal of transfer is to be sent by the board to a member within 30 days from the date on which the instrument of transfer is received by the company.
• The board may refuse to register the transfer under following conditions.
• When the provisions for transfer of shares as given in the Articles of Association are not fulfilled by the member.
In simple words: The Board of Directors can refuse to register a share transfer if the transfer doesn't comply with the company's Articles of Association. A notice of this refusal must be sent to the member within 30 days of receiving the transfer instrument.

🎯 Exam Tip: Key points are the Board's authority, the 30-day notice period for refusal, and the primary condition for refusal: non-compliance with the Articles of Association's transfer provisions.

 

• When the instrument of transfer is not as per the rules prescribed under the Companies Act.
• When the instrument is not accompanied by the share certificate.
• When the company has a lien on the shares to be transferred.

 

Question 8.
Explain Employee Stock Option Scheme.
Answer:
An employee stock option plan is an employee benefits scheme under which the company encourages its employees to acquire ownership in the form of shares. Under this scheme, permanent employees, Directors or Officers of the Company or its holding company or subsidiary company are offered the benefit or right to purchase the equity shares of the company at a future date at a predetermined price. Generally these shares are issued at discount. The shares are offered at a price lesser than their market price.
Following are the provisions related to ESOS:
• A company may offer the shares directly to the employees or through an Employee Welfare Trust.
• The shares are offered at a price lesser than their market price.
• There is a minimum vesting period of one year.
• Company specifies the lock-in period. It is a minimum of one year between grant of option and vesting.
• Shares issued under this scheme enjoys dividend or voting rights only after buying by employees.
• Company has to get the approval of shareholders through a special resolution to issue ESOS.
• Employee neither transfer his option to any other person nor pledge/mortgage the shares issued under ESOS.
• Company has to set up a compensation committee to administer ESOS.
• The company has to fulfil the provision of SEBI (Share Based Employee Benefits) Regulations, 2014.
In simple words: An Employee Stock Option Scheme (ESOS) is a benefit plan where permanent employees, directors, and officers can buy company shares at a pre-determined, discounted price at a future date. It aims to encourage employee ownership and must adhere to SEBI regulations, including vesting and lock-in periods, and requires shareholder approval.

🎯 Exam Tip: Focus on ESOS as an employee benefit allowing purchase of shares at a discounted, pre-determined price, its role in employee ownership, and the regulatory compliance (SEBI, vesting, lock-in, special resolution).

 

Question 9.
What are Calls on shares?
Answer:
• Whenever a company issues shares, the company may ask shareholders to pay the value of shares in installment which is known as calls on shares.
• Company can demand part or full amount of balance amount of unpaid shares.
• Beside the application money and allotment money if a company demands the balance unpaid amount on shares it is called as calls on shares.
• The unpaid amount on partly paid-up shares is a liability of the shareholders.
• Calls on shares can be made by the Board of Directors in the interest of the company.
• To make a call on shares, company has to send a call letter or notice to the shareholders. This notice is drafted by a secretary and issued in the name of the board of directors. The company gives them a minimum of 14 days notice to pay calls money to the Company's Banker.
• No call can be made for more than 25% of the nominal value of shares.
In simple words: Calls on shares are demands made by a company to its shareholders to pay the remaining unpaid portion of their shares in installments after the application and allotment money. A formal call letter, issued with at least 14 days' notice, is required, and no single call can exceed 25% of the nominal share value.

🎯 Exam Tip: Highlight that calls are for unpaid share value in installments, require a formal notice (call letter) with a 14-day minimum notice period, and have a maximum limit of 25% of the nominal value.

 

Question 10.
Explain private placement method for the issue of shares.
Answer:
• When a company offers its securities to a select group of persons not exceeding 200, it is called a private placement.
• In private placement, the company offers its securities only to identified person and not to the general public.
• Statement in lieu of prospectus should be filed by the company with ROC before making a private placement.
• The Board of directors selects or identify the persons to be included in the select group. They can be mutual funds, Institutional Investors etc.
• Company has to issue private placement offer letter along with the application.
• The shares offered can be fully or partly paid up and the consideration should be paid by cheque, Demand Draft, etc. but not by cash.
• Right to renunciation is not given to applicants under private placement.
• The company has to get approval of shareholders through a special resolution.
• A company can make private placement through a rights issue and preferential allotment.
In simple words: Private placement is a method where a company offers its securities to a small, select group of identified investors (not exceeding 200) rather than the general public. This method requires filing a statement in lieu of prospectus, issuing a specific offer letter, and obtaining shareholder approval via a special resolution.

🎯 Exam Tip: Remember the key characteristics: limited to a select group (max 200), not offered to the general public, requires a statement in lieu of prospectus, and no right to renunciation.

 

6. Justify the following statements.

 

Question 1.
Company has to fulfill certain provisions while making Right Issue.
Answer:
• When a company wants to issue further capital it can issue shares to its existing equity shareholders which is called Rights Issue.
• According to the Companies Act 2013 company has to fulfil certain provisions for a making Rights Issue.
• The provisions are
• Rights shares are sold to the existing shareholders at a price that is lesser than its market price.
• A company has to send 'Letter of offer' to the existing shareholders at the time of issuing Right Shares.
• The letter of offer shall mention
• The number of shares offered.
• The Period of offer i.e., offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of offer.
• The letter of offer can be sent by registered post, speed post, courier or through electronic mode.
• If a shareholder does not respond to the Rights Issue offer within a given time, it is implied that he is not interested in the offer and company can offer the unsold shares to new Investors.
In simple words: A company must follow specific legal provisions when making a Rights Issue to existing shareholders. These include offering shares at a discounted price, sending a detailed 'Letter of Offer' (specifying share quantity and an offer period between 15-30 days), and if existing shareholders don't respond, the company can offer the unsold shares to new investors.

🎯 Exam Tip: Justifications should clearly link the statement to the legal requirements. Emphasize the discounted price for existing shareholders, the mandatory 'Letter of Offer' (with its contents and time frame), and the consequence of non-response.

 

Question 2.
To issue Bonus shares a company has to fulfil certain provisions.
Answer:
• Bonus shares are fully paid shares issued free of cost to the existing equity shareholders.
• According to Companies Act 2013, every company has to follow certain provisions to issue Bonus Shares.
Following are the provisions related to Bonus Issue-
• A company can issue Bonus shares only out of
• Free reserves or
• Securities Premium Account
• Capital Redemption Reserve Account
• A company cannot issue Bonus Shares only out of Reserves credited by the Revaluation of Assets.
• It also cannot issue Bonus Shares instead of paying dividends.
• Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
• Bonus shares are fully paid up shares.
• Shareholders cannot renounce i.e., give away their Bonus Shares to another person.
• There is no minimum subscription to be collected.
In simple words: Issuing bonus shares requires a company to adhere to specific provisions under the Companies Act 2013. These shares, provided free to existing equity shareholders, must be fully paid-up and sourced from free reserves, securities premium, or capital redemption reserve. The offer, once announced, cannot be withdrawn, and shareholders cannot renounce these shares.

🎯 Exam Tip: For justification, clearly state the source of funds (only specific reserves), the 'free of cost' nature, the non-renounceability, and the irreversibility of the announcement. This demonstrates legal compliance.

 

Question 3.
ESOS is offered by a company to its permanent employees, Directors, and officers.
Answer:
• A company can raise funds by offering shares to its existing permanent employees by ESOS Scheme.
• Under this scheme permanent employees Directors or officers of the company are offered the benefit or right to purchase the equity shares of the company at a future date with a pre-determined price.
• ESOS is followed by the company to encourage its employees and to give certain benefits to them.
• Through ESOS, the company can retain its good and talented employees.
• A company may offer the shares directly to the employees or through an Employee Welfare Trust.
• It is helpful to the company to generate goodwill in the market also.
In simple words: ESOS (Employee Stock Option Scheme) is designed to benefit and incentivize a company's permanent employees, directors, and officers by giving them the right to purchase equity shares at a pre-determined, usually discounted, price in the future. This scheme aims to foster employee ownership, retention, and loyalty, contributing to the company's goodwill.

🎯 Exam Tip: Justify by explaining ESOS as an incentive for specific personnel (employees, directors, officers) to acquire ownership at a preferential price, aiming for retention and alignment of interests with company growth.

 

Question 4.
The company has to fulfill general principles/rules for allotment of shares.
Answer:
Every company issuing shares has to follow rules or general principles given by the Companies Act, 2013 as follows:
• Proper Authority: The Board of Directors or the allotment committee set up by the Board has the authority to allot shares.
• Allotment must be against application only: A Company can allot shares only if it has received a written application for shares from the applicant. Allotment of shares cannot take place on the basis of an oral request.
• Reasonable time: As per the Act, allotment shall be done within 60 days of receipt of application money. Allotment can be made from the fifth day from the date of issue of prospectus.
• Absolute and Unconditional allotment: Shares should be allotted on the same terms as stated in the prospectus and application form. No change in terms of allotment or new conditions can be added at the time of allotment.
• Communication: Company has to inform the applicant that shares have been allotted to him by sending a letter of allotment or allotment advice. The letter gives details of a number of shares allotted, amount of Allotment Money to be paid etc.
• Allotment should not be in Contravention (Violation) of any other laws: A company cannot allot shares by violating or contradicting any other existing laws e.g., shares cannot be allotted to a minor, of a country where a company operates its business.
In simple words: A company must adhere to general principles for share allotment as mandated by the Companies Act, 2013. These include ensuring allotment is by a proper authority, only against written applications, within a reasonable timeframe (60 days), on absolute and unconditional terms, with proper communication to applicants, and without violating any existing laws.

🎯 Exam Tip: To justify, detail the regulatory requirements for fair and legal share allotment: proper authority, written application, time limits, unconditional terms, clear communication, and overall legal compliance.

 

Question 5.
A Company can issue a duplicate share certificate.
Answer:
A Company can issue a duplicate share certificate in the following circumstances:
• If original share certificate has been defaced, mutilated or tom and is surrendered to the company.
• If it has been proved by the holder that the original share certificate is lost or destroyed.
• In case of loss of share certificate, the company puts up a notice in the newspaper to announce the loss of the share certificate.
• If the company does not get any response from the public within the specified time, then the company issues a duplicate share certificate.
• Duplicate share certificate should be issued within three months from the date of application.
• Duplicate share certificate should be issued within 3 months from the date of application with bold 'duplicate share certificate' marked on it.
In simple words: A company can issue a duplicate share certificate if the original is damaged, lost, or destroyed. For loss, the company advertises the loss, and if no claims arise within a specified period, a duplicate is issued within three months of application, clearly marked as 'duplicate'.

🎯 Exam Tip: Justify by outlining the specific conditions for issuing a duplicate (damaged, lost, destroyed), the public notice requirement for lost certificates, and the strict timeline (three months) for issuance, ensuring it's clearly marked as a duplicate.

 

Question 6.
Board of directors has the authority to forfeit shares.
Answer:
• Forfeiture of shares is a process where the company forfeits the shares of a member or shareholder who fails to pay a call on shares. The forfeiture of a share is a forceful activity performed by a company due to non-payment of calls by shareholders.
• Only the Board of directors can forfeit the shares if the process of forfeiture is authorised by the Articles of Association.
• Board of directors can forfeit shares only in the interest of the company.
• A 14 days of notice should be sent to a concerned member.
• Thus Board of directors can make forfeiture of shares.
In simple words: The Board of Directors holds the authority to forfeit shares when a shareholder fails to pay calls, provided this power is granted by the company's Articles of Association. This action, taken in the company's best interest, must follow due process, including sending a 14-day notice to the defaulting member.

🎯 Exam Tip: Justify by stating that the Board's power to forfeit shares is contingent on authorization in the Articles of Association, is done in the company's interest, and requires a 14-day notice to the defaulting shareholder.

 

Question 7.
A member of a public company can transfer shares.
Answer:
• Transfer of shares means voluntary transfer of shares by a member of a company to another person against consideration.
• In the case of public companies, shares are freely transferable subject to provisions of the Articles of Association.
• A member has to apply to the company for the transfer of shares by filling the 'Instrument of Transfer'.
• Member who is transferring the shares is called as Transferor and to whom shares are transferred is called Transferee.
• Transfer is said to be completed only when the transfer is registered in the Register of Members.
In simple words: A member of a public company can generally transfer shares voluntarily to another person, subject to the company's Articles of Association. This process requires the completion of an 'Instrument of Transfer' and is finalized only upon registration in the company's Register of Members.

🎯 Exam Tip: Justify by explaining the voluntary nature of transfer, free transferability in public companies (subject to AOA), the necessity of an 'Instrument of Transfer', and the final step of registration in the Register of Members.

 

Question 8.
The Board of Directors can refuse the transfer of shares.
Answer:
• Board of Directors can refuse transfer of shares as they have authority to refuse registration of transfer of shares.
• A notice of refusal of transfer is to be sent by the board to a member within 30 days from the date on which the instrument of transfer is received by the company.
• The board may refuse to register the transfer under the following conditions.
• When the provisions for transfer of shares as given in the Articles of Association is not fulfilled by the member.
• When the instrument of transfer is not as per the rules prescribed under the Companies Act.
• When the instrument is not accompanied by the share certificate.
• When the company has a lien on the shares to be transferred.
In simple words: The Board of Directors has the authority to refuse share transfers if the transfer fails to comply with the Articles of Association, the Companies Act rules, if the instrument is incomplete (e.g., missing share certificate), or if the company has a lien on the shares. A refusal notice must be sent within 30 days.

🎯 Exam Tip: Justify by listing the specific grounds for refusal: non-compliance with AOA/Companies Act, incomplete documentation, or the company having a lien on the shares, along with the 30-day notice period.

 

7. Answer the following questions.

 

Question 1.
Explain the classification of Share Capital.
OR
Explain types of Share Capital.
Answer:
Share capital is the capital that is built up by the company by issuing shares in the market. Share capital consist of capital that is made up of Equity shares and Preference shares.
In simple words: Share capital is the funds a company raises by issuing shares (equity and preference) to investors. It represents the ownership stake in the company and forms the basis of its financial structure.

🎯 Exam Tip: Define share capital broadly, mentioning it's raised by issuing equity and preference shares. The subsequent detailed classification is what the examiner expects for full marks.

(i) Authorised or Nominal or Registered Capital

ℹ️ चित्र व्याख्या (Diagram Explanation): यह चित्र शेयर पूंजी के विभिन्न वर्गीकरण को दर्शाता है। यह अधिकृत पूंजी, जारी की गई पूंजी, अनाधिकृत पूंजी, अभिदत्त पूंजी, अनअभिदत्त पूंजी, याचित पूंजी, अयाचित पूंजी, संचित पूंजी, प्रदत्त पूंजी और बकाया मांग (Calls in Arrears) के बीच पदानुक्रमित संबंध को संख्यात्मक उदाहरणों के साथ स्पष्ट करता है। उदाहरण के तौर पर, अधिकृत पूंजी 1,00,000 इक्विटी शेयर (Rs. 10/- प्रत्येक) = Rs. 10,00,000 से शुरू होती है और फिर उसके विभिन्न उप-भागों को दर्शाती है जैसे जारी की गई, याचित, और प्रदत्त पूंजी।

• The Authorized capital is the maximum amount of capital that a company can raise through the issue of shares to the shareholders.
• The Authorized capital of a company is also called as the Registered capital or Nominal Capital.
• Authorized capital is the maximum capital that is authorized by the company's Memorandum of Association.
• The Authorized capital is mentioned in the Memorandum of Association of the company under the heading 'capital clause' and the company pays stamp duty on this amount at the time of incorporation.
• Authorized capital is also called as 'Nominal Capital' as usually a company never issues the entire Authorized Capital.
• A company can increase its Authorized Capital by altering its Memorandum of Association.
• The maximum limit of authorized capital is registered with the registrar of the companies.
• Example of Authorized Capital: XYZ Ltd. Company has an authorized capital of Rs. 10,00,000, then it can issue shares worth up to Rs. 10,00,000 to its shareholders and cannot issue anything beyond it.

(ii) Issued and Unissued capital:

• Issued capital is that portion of authorized shares capital that had been raised by issuing shares to the general public.
• These are the shares that the company offers to prospective investors for a subscription.
• The issued capital of a company may be equal to or less than the Authorized Capital of incorporation.
• The balance part of Authorized Capital which is not offered to the public for subscription is called 'unissued capital'.
• Unissued capital is that capital which a Company is authorized to issue but has not issued as shares.
• Unissued capital is the balance part of Authorised capital which is not offered to the public.
• Example of Issued and Unissued Capital: XYZ Ltd Company can have issued Capital of Rs. 4,00,000 divided into 40,000
• Equity Shares at Face Value of Rs. 10/- each and the Unissued Capital 6,00,000 divided into 60,000 equity shares of Rs. 10/- each.

(iii) Subscribed and Unsubscribed Capital:

• Subscribed share capital is that part of issued share capital for which a company has positively received a subscription from the investor.
• It is a part of Issued Capital that has been subscribed by investors or purchased by the general public.
• The subscribed capital may be equal to or less than the issued capital.
• The part of the Issued Capital which is not subscribed by the investors is called as 'Unsubscribed Capital'.
• Example of Issued and Unissued capital: If XYZ Ltd company has issued capital 4,00,000 i.e., it has issued 40,000 equity shares of Rs. 10 each and company has received subscription for 30,000 shares i.e., for 30,000 equity shares of Rs. 10/- each then its subscribed capital is Rs. 3,00,000 and unsubscribed capital will be Rs. 1,00,000 divided into 10,000 Equity shares of 10/- each.

(iv) Called up and Uncalled capital and Reserve capital:

• Called up share capital is that part of share capital that has been called by the company for payment from shareholders.
• The company collects the full value of shares in installments and each installment is called a 'call'.
• Uncalled Capital is that part of subscribed capital that is not demanded from the shareholders.
• A company can decide to keep aside a part of its uncalled capital to be called up only at the time of winding up of a company to meet its financial requirements. Which is called a Reserve Capital.

Example of call up, uncalled and Reserve Capital.
If XYZ Ltd company is to subscribed capital is Rs. 3,00,000 i.e., 30,000 equity shares of face value of Rs. 10/- each. Out of which company made first call of Rs. 5/- per share, so company called up capital will be Rs. 1,50,000 (30,000 Equity shares x 5/- each = Rs. 1,50,000)
If the company decides to keep Rs. 1/- per share as capital to be collected at the time of the winding-up, the Reserve Capital will be 30,000 (30,000 equity shares of 10 each.)
Uncalled Capital will be 1,20,000 (30,000 equity shares were 4 per share which will be called up in the future.)

(v) Paid-up capital and calls in Arrears:

• Paid-up capital is the amount of money a company has received from shareholders in exchange for shares.
• It is the total amount of money paid up by the shareholders when the company has called up or demanded them to pay.
• The paid-up capital can be equal to or less than the authorized capital.
• Unpaid capital means any uncalled or unpaid share capital. The amount not paid to shareholders is also called as calls in Arrears.
• Every shareholder has to pay calls as and when the company demands, failure to pay the calls may lead to future forfeiture of shares (cancellation of shares).

Example of paid up capital and calls in Arrears.
'XYZ' Ltd Company has made a call of Rs. 5/- per share on 30,000 equity shares, so if all the shareholder have paid the calls, then paid-up capital will be 1,50,000 (30,000 equity shares of Rs. 5/- per share). But if 10,000 Equity Shareholders have not paid calls then the paid-up capital will be Rs. 1,00,000 (20,000 Equity Shares x 5/- per share) and calls in Arrears will be Rs. 50,000 (10,000 Equity Shares x 5/- per share).

Question 2.
What are the methods of issue of shares to the public through public offer?
Answer:
Issue of shares is the process in which companies offer new shares to shareholders. The company follows different methods prescribed by the Companies Act 2013 while issuing the shares. There are two methods of issue of shares to the public through public offer, they are - Public issue or Public offer of shares.
A public offering is the sale of equity shares to the public in order to raise capital. This is the most popular and common method used by companies. The company invites the public to subscribe to its shares by issuing prospects. A company can use two pricing methods to offer shares to the public.
(i) Fixed Price Issue method:

• In an initial public offering (IPO), if the shares are offered at a fixed price such issue is known as Fixed Price issue.
• In this method, company mentions the Quantity and the price at which shares are offered.
• Investors can pay a certain portion of face value of shares or the entire issue price along with the application.
• Company issues shares at par. E.g., shares having a face value of Rs. 100 and is issued as 100, at premium e.g., a share having a face value of 100 and is issued at 150, or at discount e.g., face value is 100 and the insured price is 80/-.
• Fixed price method is used for all types of issues i.e. Public issue, Right issue, Esos etc.

(ii) Book Building Method:

• The method of offering shares by providing a price range is called the book building method.
• In the book building method shares will be sold by the bidding process.
• The company issues a Red Herring Prospectus which contains a price range or price band and asks the investor to bid on it.
• In this method the company doesn't fix up a particular price for the share but gives a price range e.g., Rs. 80 to 100.
• When bidding for the shares, investors have to decide at which price they would like to bid for the shares e.g., 80, 90, Rs. 100.
• The lower price band (80) is known as the floor price and the highest price band (100) is known as cap price. The final price at which shares are offered to investors is called cut off price.
• Based on the demand and supply of the shares, the final price is fixed.
• Investors can bid on any number of shares that they are willing to buy at given price band. Such bidding is kept open for 5 days.
• The bids with application money is to be submitted to the Lead Merchant Bankers called 'Book Runners' who enter the bids in a book.
• After bidding, the company fixes cut off the price at which shares on offer can be sold.
• Company issues a prospectus which contains the final price.
• Book Building method is used for public issues i.e. IPO and FPO.
  Further public offer:
  It is also called a follow on public offer. When the company issue shares to the public after IPO, it is called a a further public offer. Thus every issue of shares by a listed company after its IPO is called as FPO. FPO leads to an increase in the subscribed capital of the company.

In simple words: Companies can issue shares to the public through two main methods: Fixed Price Issue, where the price is set beforehand, and Book Building Method, where the price is determined through a bidding process. The Fixed Price method has a predetermined price, while Book Building involves a price range with bids.

🎯 Exam Tip: Understanding the two primary methods of issuing shares to the public (Fixed Price Issue and Book Building) is crucial, as is knowing the stages and pricing mechanisms involved in each. Pay attention to the role of a prospectus and how the final price is determined.

Question 3.
Explain briefly the different types of shares offered by a company to its existing equity shareholders.
Answer:
The company issues equity shares in the market. The equity shareholders are the real owner of the company.
A company can raise funds by offering shares to its existing equity shareholders as follows.

ℹ️ चित्र व्याख्या (Diagram Explanation): यह चित्र दर्शाता है कि कंपनियां आम तौर पर अपने मौजूदा इक्विटी शेयरधारकों को दो प्रकार के शेयर जारी करती हैं: राइट्स इश्यू (Rights Issue) और बोनस शेयर (Bonus Shares)।

(i) Right Issue:
A right issue is an invitation to existing shareholders to purchase additional new shares in the company. A right issue is a way by which a listed company can raise additional capital. Instead of going for the public issue of shares, the company gives its existing shareholders, the right to subscribe to newly issued shares in proportion to their existing equity shareholding.
Whenever a company makes the further issue of shares the existing equity shareholders have preemptive rights means the first option to buy shares.
Company making rights issue has to fulfil the following provision:

• Rights shares are sold to the existing shareholders at a price that is lesser than its market price.
• A company has to send a 'Letter of offer' to the existing shareholders at the time of issuing Rights Shares.
• The letter of offer shall mention
  (i) The number of shares offered.
  (ii) The period of offer i.e., offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of the offer.
• The letter of offer can be sent by registered post, speed post, courier or through electronic mode.
• If a shareholder does not respond to the Rights Issue offer within a given time, it is implied that he is not interested in the offer and company can offer the unsold shares to new Investors.

(ii) Bonus Issue/Bonus Shares:
Bonus Shares are shares distributed by a company to its current shareholders as fully paid shares free of charge. The Bonus shares are given to the existing equity shareholders according to their existing proportion of equity shareholdings.
Like for example, a company declaring one for two bonus share proportion means that an existing shareholder would get one bonus share of the company for every two shares held. Financially sound companies issue Bonus shares out of their accumulated distributable profits or reserves. Hence as the profits or reserves are capitalized, it is called "Capitalisation of Profits or Reserves."
Following are the provisions related to Bonus Issue-

• A company can issue Bonus shares only out of
  (i) Free reserves or
  (ii) Securities Premium Account
  (iii) Capital Redemption Reserve Account
• A company cannot issue bonus shares only out of Reserves Credited by the Revaluation of Assets.
• It also cannot issue Bonus Shares instead of paying dividends.
• Once the announcement for Bonus shares is made by the Board of Directors, it cannot be then withdrawn.
• Bonus shares are fully paid up shares.
• Shareholders cannot renounce i.e, give away their Bonus Shares to another person.
• There is no minimum subscription to be collected.

In simple words: Companies offer two main types of shares to existing equity shareholders: Rights Issues, which allow them to buy new shares at a preferential price, and Bonus Shares, which are free shares given out of accumulated profits. Both methods help companies raise capital or reward shareholders.

🎯 Exam Tip: Differentiate clearly between Rights Issues and Bonus Shares, focusing on their purpose, how they are offered, and the benefits to shareholders and the company. Remember the key provisions for each, especially concerning payment and renunciation rights.

Question 4.
Explain the statutory provisions for the allotment of shares.
Answer:

• The allotment of shares is the issuing of new shares to an applicant based on the application submitted or to the existing shareholders.
• Every company has to fulfill the provisions of the Companies Act for making allotment of shares.
• The provisions which are laid down by the Companies Act, 2013 are called statutory provisions.

(i) Registration of Prospectus:

• A copy of the prospectus must be filed with the Registrar of Companies for registration on or before the date of its publication.
• In the case of the newly formed company, a prospectus must be signed by every proposed director or director or his duly authorized advocate. The copy of the prospectus is drafted by the secretary of the company with the permission of the board of directors.

(ii) Application Money:

• The applicant has to pay a minimum of 5% of nominal amount of the shares along with the application form.
• For public limited companies SEBI has specified that application money should be minimum of 25% of the nominal amount of shares.
• The application money is to be paid in the Bank specified by the company.

(iii) Minimum Subscription:

• Minimum Subscription is the amount which is mentioned in the prospectus. It is the minimum amount of shares which should be bought by the subscribers.
• According to SEBI minimum subscription should be 90% of the issue.
• In case the minimum subscription is not collected within the specified time, the company has to return the entire amount of application money to the subscribers.

(iv) Closing of Subscription list:

• According to SEBI a company has to keep open its subscription list for at least three working days and not more than ten working days.
• Applicants can apply for shares only when the subscription list is open.

(v) Basic of allotment:

• Allotment of shares will be decided on the basis of each category of subscribers.
• Allotment of shares will be as per the minimum application size which is fixed by the company.

In simple words: Statutory provisions for share allotment are legal rules companies must follow when issuing new shares. These include registering the prospectus, collecting minimum application money, ensuring minimum subscription is met, adhering to subscription list timelines, and determining allotment based on subscriber categories.

🎯 Exam Tip: Focus on the specific percentages (e.g., minimum application money, minimum subscription) and timeframes (e.g., subscription list duration) prescribed by SEBI and the Companies Act 2013. Understanding the purpose of each provision is key for comprehensive answers.

(vi) Over Subscription:

• Oversubscription refers to a situation in which a company receives more application of shares than the number of shares offered.
• SEBI does not allow any allotment which is in excess of the offer given by the company through a document or prospectus.
• SEBI may permit to allot the shares not more than 10% of the net offer.

(vii) Permission to deal on Stock Exchanges:

• Every company, before making a public offer shall apply to one or more recognized Stock Exchanges to take permission for listing its shares with them
• The prospectus must mention the name of the stock exchange in which the company is listed.
• The prospectus should also state the fact that an application for permission to list in that stock exchange has been made by the company.

(viii) Appointment of Managers to the issue and various other agencies.

• The company has to appoint one or more Merchant Bankers to act as managers to the public issue.
• The company has to appoint Registrar to the issue (institutions that keeps the records of the issue), collecting bankers and underwriters to the issue as well as brokers to the issue.
• The company has to also appoint self-certified syndicate banks (banks certified by SEBI which offers ASBA facility to investors), which are certified by SEBI, advertising agents, etc.

Question 5.
Explain briefly the procedure for allotment of shares.
Answer:
Allotment of Shares:

• Allotment means distribution of shares among the applicants. It means giving shares to share applicants or to specific persons with whom the company has entered into contract.
• Allotment of shares is a procedure in which shares are distributed to those applicants who have submitted a written application along with the application money. If company allots shares alter fulfilling all statutory and general provisions of Companies Act, 2013 such allotment is called as "Regular Allotment".

Procedure for Allotment of Shares
(i) Appointment of Allotment Committee

• When the subscription list is closed the secretary informs the Board of Directors to make preparations for allotment of shares.
• If the issue is par subscribed or under subscribed, the Board can do the allotment of shares.
• In case of over subscription the board has to appoint and Allotment Committee to undertake the work of Allotment.
• The Allotment Committees decides the basis of allotment and submits a report to the Board.

(ii) Hold Board Meeting to Decide Basis of Allotment

• Board meeting is held to approve the allotment formula suggested by the Allotment Committee.
• A representative of SEBI should be present when the allotment committee prepares the allotment formula.
• After approval of the allotment formula, an allotment list is made.
• If the shares are listed, then the company should take the permission of the concerned stock exchange.
• The allotment list contains the names of allotters. Which should be signed by the chairman and secretary.

(iii) Pass Board Resolution for allotment:

• A resolution is passed to allot shares in board meeting.
• Secretary sends 'Letter of Allotment' to allotters those applicant whom shares are allotted.
• Secretary has to send a 'Letter of Regret' to those applicants to whom no shares have been issued.
• Along with the letter of Regret the application money is also refunded.
• The company that issues shares in electronic form informs respective Depository (NSDL or CDSL) about allotment of shares.
• It also provides details of applicants whom shares are allotted, number of shares allotted, etc.

(iv) Collection of Allotment Money:

• The letter of allotment states the money to be paid by the applicant on the allotment of shares.
• The money has to be paid in the Bank specified by the company within the stipulated time.
• For all public issues and rights issues ASBA is compulsory since January 2016.

(v) Arrangement Relating to Letters of Renunciation:

• An applicant who has been allotted shares can renounce the shares in favor of another person.
• The applicant has to fill up a form for renunciation to the company with the original copy of the letter of allotment.
• After the permission of the board, the secretary enters the detail of the new person in the application and allotment list.

(vi) Arrangement Relating to Splitting of Allotment letters:

• An applicant who has been allotted shares can request for the splitting of allotment shares.
• After getting the approval of the Board for the splitting. Secretary enters the details of the split in the list of split allotment for which secretary has to ensure spilled letter.

(vii) File Return of Allotment:

• Secretary has to file a "Return of Allotment' with the Registrar of Companies within 30 days of allotment of shares.
• The return of allotment contains details of allotment of shares which includes the names and addresses of allotters, the value of shares allotted amount paid or payable on each share, etc.

(viii) Prepare Register of Members and Issue of Share Certificate

• Secretary has to enter the names of all those applicants who have paid the allotment money in the Register of Members.
• Secretary also has to prepare the share certificates and distributes them to all the members within two months from the date of allotment of shares.

In simple words: The share allotment procedure involves appointing an allotment committee, holding a board meeting to decide the allotment basis, passing a board resolution, collecting allotment money, handling renunciation and splitting requests, filing a return of allotment with the Registrar, and finally, preparing the Register of Members and issuing share certificates.

🎯 Exam Tip: Memorize the step-by-step procedure for share allotment, including key timelines (e.g., 30 days for Return of Allotment, 2 months for share certificates) and the roles of various parties like the Board of Directors, Allotment Committee, and SEBI. Each step is a potential point for evaluation.