12th SP Chapter 3 Solutions (Issue of Shares) – Maharashtra Board – Free Solution
Table of Contents
12th SP Chapter 3 Solutions
Chapter 3- Issue of Shares
Q.1 A) Select the correct answer from the options given below and rewrite the statements.
1) _____ refers to capital made up of Equity and preference shares
a) Share capital
b) Debt capital
c) Reserve fund
2) _____ capital refers to maximum capital a company can raise by issuing shares.
a) Issued
b) Authorised
c) Paid up
3) _____ means shares are offered to the public.
a) Rights Issue
b) Private Placement
c) Public Issue
4) Under _____ method, issue price of shares is based on bidding.
a) Book Building
b) Fixed Price
c) Bonus Issue
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
6) _____ is offered to existing equity shareholders.
a) IPO
b) ESOS
c) Rights Issue
7) Bonus shares are issued free of cost to _____.
a) existing Equity shareholders
b) existing employees
c) Directors
8) _____ are offered to permanent employees, Directors, and Officers of a company.
a) Bonus Shares
b) Rights Issue
c) ESOS
9) Under _____, a company offers its securities to a select group of persons not exceeding 200.
a) Private Placement
b) IPO
c) Public Offer
10) The _____ have the power to allot shares.
a) Director
b) Board of Directors
c) Company Secretary
11) Letter of _____ is sent to applicants who have been given shares by the company.
a) Regret
b) Renunciation
c) Allotment
12) _____ is a proof of title to Shares.
a) Share Certificate
b) Register of Member
c) Letter of Allotment
13) The gap between two calls should not be less than _____.
a) 14 days
b) One month
c) 21 days
14) Company can _____ shares on non-payment of calls.
a) forfeit
b) surrender
c) allot
15) Voluntarily giving away one’s share to another person is called as _____ of shares.
a) Transfer
b) Transmission
c) Surrender
16) _____ of shares takes place due to operation of law.
a) Forfeiture
b) Allotment
c) Transmission
Q.1 B) Match the pairs.
| Group A | Group B |
| a) Death of member | 1) Forfeiture of shares |
| b) Voluntary return of shares to the 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 |
Answers.
a. 5) Transmission of shares
b. 4) Surrender of shares
c. 9) Fixed price issue method
d. 3) Offered to existing employees
e. 6) Non-allotment of shares
| 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 |
a. 5) Capital offered to public to subscribe
b. 2) Any issue after IPO
c. 7) Free shares issued to existing equity shareholders
d. 5) Share certificate
e. 1) Non-payment of calls
Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12
Q.1 C) Write a word or a term or a phrase which can substitute each of the following statements.
1) Capital collected by way of issue of Equity and Preference shares.
Ans: Share Capital
2) Part of issued capital subscribed by investors.
Ans: Subscribed Capital
3) Capital that will be collected only at the time of winding up of a company.
Ans: Reserve Capital
4) Highest bid price in Book Building method.
Ans: Cap price/ceiling price
5) Offering of shares b a company to the public for the first time.
Ans: Initial public offer/IPO
6) Subsequent issue of shares after an IPO.
Ans: Further Public Offer/Follow on Public Offer FPO
7) Pre-emptive right given to existing Equity shareholders to subscribe to new issue of shares
by company.
Ans: Rights Issue
8) It is also called as ‘Capitalisation of Profits’.
Ans: Bonus Shares
9) Appropriation of shares to an applicant.
Ans: Allotment of Shares
10) Committee set up to decide the formula for allotment of shares in case of over subscription.
Ans: Allotment Committee
11) Minimum amount to be collected from subscribers within thirty days of issue of prospectus.
Ans: Minimum subscription
12) Document which is prima facie evidence of ownership of certain shares of a company.
Ans: Share Certificate
13) Penal action taken by company on non-payment of calls.
Ans: Forfeiture of Shares
14) Person to whom transferor is transferring the shares.
Ans: Transferee
15) Transfer of shares due to operation of law.
Ans: Transmission of shares
Q.1 D) State whether the following statements are true or false.
1) Only fully paid up shares can be forfeited.
Ans: False
2) The member transferring shares is called as transferor.
Ans: True
3) Share certificate is issued for partly or fully paid-up shares.
Ans: True
4) Allotment of shares must be done within one month of receipt of application money.
Ans: False
5) Sweat Equity shares are offered to Directors or employees of a company.
Ans: True
6) Bonus Shares are issued at a discounted price to the Equity shareholders.
Ans: False
7) Floor price is the highest bid price under Book Building method.
Ans: False
8) Calls not paid by a shareholder is called as calls in arrears.
Ans: True
9) Shares not offered to the public for subscription are called as subscribed capital.
Ans: False
10) Authorised capital is mentioned in a capital clause of Memorandum of Association.
Ans: True
Q.1 E) Find the odd one.
1) Authorised capital, Equity share capital, Issued capital, Paid-up capital.
2) ESOS, ESPS, Rights Shares, Sweat Equity.
3) Floor Price, Cap price, Cut-off price, Face Value.
4) Bonus shares, Rights Shares, ESOS.
5) Allotment of shares, Forfeiture of shares, Surrender of shares.
Q.1 F) Complete the sentences.
1) Share capital refers to capital made up of Equity shares and Preference Shares.
2) Reserve capital is part of Uncalled capital.
3) Transfer of shares due to death, insolvency, or insanity of member is called Transmission of shares.
4) The two parties involved in transfer of shares are transferor and transferee.
5) Voluntarily giving up of shares by a member due to inability to pay calls is called as Surrender of Shares.
6) Company can forfeit only Partly paid shares.
7) In case the original Share Certificate is torn or mutilated, company can issue Duplicate share certificate.
8) In case of transfer of shares, compan has to issue to the transferee a new share certificate within 1 month of date of receipt of instrument of transfer.
9) Letter sent to applicants for informing them shares are allotted is called as Letter of allotment.
10) When applications received are more than the number of shares offered, it is called as Oversubscription.
11) In Book Building Method, the final price at which shares are offered to investors is called as Cut-off price.
12) Shares issued free of cost to existing Equity shareholders is called as Bonus shares.
Q.1 G) Select the correct option from the bracket.
| 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 Shareholders |
| d) Shares offered to existing employees | 4) ESOS |
| e) Operation of law | 5) Transmission of shares |
Q.1 H) Answer in one sentence.
1) When does transmission of share take place?
Answer: Transmission of share take place in case of death, insolvency or insanity of a member.
2) Name the parties involved in the transfer of shares.
Answer: Transferor and transferee are the two parties involved in transfer of shares.
3) What is the time limit to issue share certificate on allotment of shares?
Answer: Share certificate should be issued within 2 months from the date of allotment of shares.
4) What is the time limit for filing Return of Allotment with the Registrar on allotment of shares?
Answer: Return of allotment must be filled with the Registrar within 30 days of the date of allotment.
5) When can a company forfeit shares?
Answer: Company can forfeit shares if a shareholder fails to pay calls on shares within a certain period.
6) What is a share certificate?
Answer: It is a registered document issued by a company that is evidence of ownership of specified number of shares of the company.
7) What is the minimum application money to be collected by company as per the Companies Act?
Answer: The application money to be a minimum of 25% of the nominal amount of shares.
8) With whom should the prospectus be filed before issuing it to the public?
Answer: A copy of the prospectus must be filed with the Registrar of Companies for registration on or before the date of its publication.
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 as Private Placement. In other words, company offers its securities only to identified persons and not to the
general public.
10) To whom is Sweat Equity Shares offered by a company?
Answer: These are shares issued by a company to its directors or employees at a discount or for consideration other than cash. It is issued in recognition of their valuable contribution to the company which has resulted in
increased profits.
11) To whom can a company issue Bonus Shares?
Answer: Bonus shares are issued to its existing shareholders.
12) What is the subsequent issue after IPO called as?
Answer: Subsequent issue after IPO called as FPO ( Further Public Offer or Follow on Public Offer ).
13) Name the method under which the issue price of shares is fixed through a bidding process.
Answer: The method under which the issue price of shares is fixed through a bidding process is called Book Building.
14) What is Public Issue?
Answer: Public Issue or offer means offering the shares to the public.
15) Name the capital which is mentioned in the capital clause of Memorandum of Association.
Answer: Authorised Capital is mentioned in the capital clause of Memorandum of Association.
Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12
Q.1 I) Correct the underlined word/s and rewrite the following sentences.
1) Issued capital is the maximum capital which a company can raise by issuing shares.
Answer: Authorised Capital
2) Under Fixed price issue method, the price of shares is fixed through bidding process.
Answer: Books building method
3) FPO refers to offering of shares to the public for the first time.
Answer: IPO
4) Only fully paid up shares can be forfeited.
Answer: Partly paid up
5) Bonus shares are offered to existing employees of a company.
Answer: Equity Shareholders
6) Company enters into an underwriting agreement with the shareholders.
Answer: Underwriters
7) Letter of Allotment is sent to applicants when no shares are allotted to them.
Answer: Letter of Regret
8) Duplicate share certificate must be issued within one month from date of application.
Answer: Three
9) Call money cannot exceed 5% of nominal value of shares.
Answer: 25%
Q.1 J) Arrange in proper order
a) Forfeiture of shares.
b) Calls on shares.
c) Allotment of shares.
Answer: (c) Allotment of shares (b) Calls on shares (a) Forfeiture of shares
a) Share certificate
b) Allotment letter
c) Application form
Answer: (c) Application form (b) Allotment letter (a) Share certificate
a) Return of allotment
b) Application form
c) Minimum subscription
Answer: (b) Application form (c) Minimum subscription (a) Return of allotment
Q.2 Explain the following terms/concepts.
1) Transmission of shares:
Answer: Transmission of shares takes place due to operation of law i.e. the shares of a member is automatically transferred to another person on the death, insolvency or insanity of a member. Thus the transmission of shares is an involuntary action. There is only one party i.e. Legal Heir who initiates the process of transmission. The legal heir or official receiver need not pay any consideration for the shares. Original liability of the member continues incase of transmission. There is no need to submit Instrument of Transfer or pay stamp duty.
2) Bonus Shares:
Answer: Bonus shares are fully paid shares issued free of cost to the existing equity shareholders in proportion to their shareholdings. Usually financially sound companies issue Bonus Shares out of its accumulated distributable profits or reserves. Hence as the profits or reserves are capitalized, it is also called as ‘Capitalisation of Profits or Reserves’.
3) Allotment of Shares:
Answer: When a company gives shares to an applicant based on the application submitted, it is called an Allotment of Shares.
Thus as per this definition, Allotment of shares means allocating (giving) a certain number of shares by the Board of Directors out of the previously unallocated capital of the company to persons who have applied for the shares.
The company issues prospectus and application form. Applicant (subscribers) fills the form and submits it, with application money to the company’s bankers. The Board of Directors approves the acceptance of such applications in the Board meeting by passing the resolution. This is called an allotment of shares.
The Board of Directors has the power to allot shares.
4) Employees Stock Option Scheme (ESOS):
Answer: 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 pre-determined price.
ESOS encourages employees as they feel proud to be owners of the company for which they are working and company also benefits as it can retain good employees.
5) Surrender of shares:
Answer: This means 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 reissued in the same way as forfeited shares. The Articles of Association of a company must provide for surrender of shares.
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 issued in recognition of their valuable contribution to the company which has resulted in
increased profits.
These shares have a lock-in period of three years i.e. they cannot be transferred during this period. The company has to get the approval of shareholders through Special Resolution to issue Sweat Equity shares.
7) Share Certificate:
Answer: It is a registered document issued by a company that is evidence of ownership of a specified number of shares of the company. A share certificate is prima facie evidence of title to shares.
If any dispute about membership arises, the share certificate will be held as evidence and not the entries in the Register of Members.
Share certificate has to be issued under the common seal of the company, if any and signed by two Directors duly authorized by the Board of Directors and the Company Secretary or any other authorized person.
8) Authorised Capital:
Answer: Authorised Capital is the maximum capital authorized by Memorandum of Association that a company can raise by issuing shares.
It is also called as Registered Capital as it is mentioned in the capital clause of Memorandum of Association and the company pays stamp duty on this amount at the time of incorporation. Authorized Capital is calculated considering the need of capital of a company at present and in future.
9) Forfeiture of Shares:
Answer: If a shareholder fails to pay calls on shares within a certain period, the Board of Directors, if authorized by the Articles of Association, can forfeit i.e. take away the ownership of a member. This is called as forfeiture of shares. Only partly paid up shares can be forfeited
Board can forfeit shares only in the interest of the company. The company has to send a notice of forfeiture to the concerned member. The notice must give minimum 14 days period from the date of service of notice, to make the payment along with interest.
10) Paid up Capital:
Answer: Paid-up capital is the total amount of money actually paid up by the shareholders when the company has called up or demanded them to pay.
The amount not paid up by the shareholders is called up as Calls in Arrears or unpaid calls. Every shareholder has to pay calls as and when the company demands. Failure to pay the calls may lead to the forfeiture of shares.
11) Calls on shares:
Answer: At the time of issue of shares, a company may state that the issue price of the shares is to be paid in installments as and when the company demands for it. So when a company demands the shareholder to pay a part or full amount of the balance amount unpaid on shares, it is called as ‘Calls on Shares’.
Calls can be made only by the Board of Directors in the interest of the company. The company has to send a call letter/notice to the shareholders asking them to pay the call money and give them minimum 14 days notice to pay the call money to the Company’s Banker. No call can be made for more than 25% of the nominal value of shares. The gap between two calls should not be less than one month from the date fixed for the payment of last preceding call. The rules and procedure to make calls is given in the company’s Articles of Association.
12) Subscribed Capital:
Answer: Subscribed capital is that part of Issued-capital which has been subscribed or taken up (bought) by investors (subscriber). The public may or may not subscribe for the entire Issued capital. Hence, that part of the Issued capital not subscribed by the investors is called as ‘unsubscribed capital’. Thus, the subscribed capital may be equal to or less than the Issued capital.
13) Minimum Subscription:
Answer: Minimum subscription is the minimum amount of shares that must be taken or bought by the subscribers. This amount is mentioned in the prospectus. It must be collected within thirty (30) days from issue of prospectus. SEBI has stated minimum subscription should be 90% of the issue.
14) Transfer of Shares:
Answer: Transfer of shares means voluntary transfer of shares by a member of a company in favour of another person. A member may transfer the shares for consideration or give it away as gift. Every member has a right to transfer their shares.
In case of public companies, shares are freely transferable subject to the provisions of the Articles of Association. Whereas, in case of Private Company, there are restrictions on free transfer of shares.
15) Initial Public Offer:
Answer: Initial Public Offer refers to the process of offering shares of a company to the public for the first time. A new company or an existing company that had raised its capital earlier from promoters or other investors may offer its shares to the public when it is in need of fresh funds. The first time, the company offers its shares to the public is called as Initial Public offer.
16) Blank Transfer:
Answer: When a member signs the Instrument of transfer without filling in the name of the transferee and hands it over to the transferee along with the share certificate, it is called ‘Blank Transfer’.
The blank transfer enables easy 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.
17) Further Public Offer:
Answer: When a company issues shares to the public after an IPO, it is called as further (Follow on) public offer. Thus, every issue of shares by a listed company after its IPO is called as FPO. FPO leads to an increase in the subscribed capital of a company.
18) Forged Transfer:
Answer: The forged transfer is where the signature of the transferor is forged. The company should not register such transfer of shares.
19) Right Issue:
Answer: When a company wants to raise further capital, it can issue shares to its existing Equity shareholders in proportion to their existing shareholding. Such an issue of shares is called as ‘Rights Issue’ of shares. Whenever a company makes further issue of shares, the existing Equity shareholders have ‘pre-emptive rights’ to subscribe to the new shares offered by the company.
20) Private Placement:
Answer: When a company offers its securities to a select group of persons not exceeding 200, it is called as Private Placement.
In other words, the company offers its securities only to identified persons and not to the general public.
Q.3 Study the following case/situation and express your opinion.
(1) Eva Ltd. Company’s capital structure is made up of 1,00,000 Equity shares having face value of 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 Rs.
a) Authorised capital.
Answer: Authorised Capital of EVA Ltd. is Rs 10,00,000 made of 1,00,000 Equity Shares of Rs 10 each.
b) Subscribed capital
Answer: Subscribed capital of the company is Rs 3,00,000 made of 30,000 Equity Shares of Rs 10 each.
c) Issued capital
Answer: Issued capital of the company is Rs 4,00,000 made of 40,000 Equity Shares of Rs 10 each.
(2) TRI Ltd. Company is a newly incorporated public company and wants to raise capital by selling Equity shares to the public. The Board of Directors are considering various options for this. Advise the Board on the following matters :
a) What should the company offer – IPO or FPO?
Answer: TRI Ltd. should offer IPO, as IPO is the process when a new company or an existing company offering its shares to the public for the first time.
b) Can the company offer Bonus Shares to raise its capital?
Answer: TRI Ltd. Company is a newly incorporated public company and do not have any shareholders and accumulated profit. It cannot offer Bonus Shares to raise capital.
c) Can the company enter into an Underwriting Agreement?
Answer: Yes, the company can enter the underwriting agreement. The underwriters assure the company to take
up the unsold shares (Securities) so that the company is able to raise its minimum subscription.
(3) Silver Ltd. Company has recently come out with its public offer through FPO. Their issue was oversubscribed. The Board of Directors now wants to start the allotment process. Please advise the Board on :
a) Should the company set up an allotment committee?
Answer: Yes, the company should set up an allotment committee. The Allotment Committee will decide
the basis of allotment and submit a report to the Board.
b) How should the company inform the applicants to whom the company is allotting shares?
Answer: The company should inform the applicants to whom the company is allotting shares by issuing a letter of allotment.
c) Within what period should the company issue a share certificate?
Answer: They must issue a share certificate within two months of allotment of shares.
(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 100) held by them. The company has sent letters asking the shareholders to pay the money to its Bankers within the specified time.
a) Are the shareholders liable to pay Rs 20 for the shares held by them?
Answer: Yes, the shareholders are liable to pay Rs 20 for the shares held by them.
b) Name the letter sent by the company to its shareholders asking them to pay Rs 20/-?
Answer: The letters sent by the company to its shareholders asking to pay Rs 20 is called a ‘Call Letter’.
c) What happens if a shareholder fails to pay the money within the specified time?
Answer: If a shareholder fails to pay calls on shares within a certain period, the Board of Directors, can forfeit their shares i.e. take away the ownership of a member.
(5) X owns 100 shares while Y owns 500 shares of Red Tubes Ltd. The company has asked all its shareholders to pay the balance unpaid amount of Rs 20. X pays the full money demanded by the company. Y, who is in a bad financial position is unable to pay any money.
a) Can the company forfeit the shares of Y?
Answer: Yes, the company can forfeit the shares of Y, because he fails to pay the call money within a specific time.
b) Can the company forfeit the shares of X?
Answer: No, the company cannot forfeit the shares of X, because he has paid the call money within a specific time.
c) Can X transfer his shares?
Answer: Yes, X can transfer his shares as fully paid up shares are freely transferable.
Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12
Q.4 Distinguish between the following.
1) Initial Public Offer and Further Public Offer.
| 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) Type of issuer company | It is issued by an unlisted Public Company. | It is issued by a listed Public Company. |
| 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 proceeds 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. | The 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. |
2) Fixed Price Issue Method and Book Building Method.
| 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. The investors are given a price band and are asked to bid at a price within the band. This way company arrives at a price at which it will sell its shares. |
| 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 price at which shares are offered and the total number of shares offered by the company. | Company issues a Red Herring Prospectus. It contains only the price band and the total size of 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 can know the public demand for its shares every day. The bids are registered in the book every day 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 his 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 Issue, Rights Issues, ESOS, etc. | It is usually used in Public issues i.e. IPO and FPO. |
3) Rights Shares and Bonus Shares :
| Points | Rights Shares | Bonus Shares |
| 1) Meaning | In rights issue, shares are offered to the existing equity shareholders i.e. Company offers the shareholders the first option to buy the shares of the company. | Bonus shares are issued to the existing equity shareholders free of cost. |
| 2) Payment | Subscribers have to pay for the Rights Shares. Company only gives them a right to buy these shares. | Bonus shares are issued free of cost to the shareholders. |
| 3) Partly / fully paid up shares | Shareholders have to pay for these shares as Application Money, Allotment, Call Money etc. till the full money on shares is paid up. | Bonus shares are fully paid up shares. So no money has to be paid by the shareholders to the company. |
| 4) Minimum Subscription | Company has to obtain minimum subscription. If the company fails to receive minimum subscription, it has to refund the entire application money received. | There is no minimum subscription to be collected as Bonus shares are issued free of cost by the company. |
| 5) Right to Renounce | The shareholders can renounce his shares. | Shareholders cannot renounce his bonus shares. |
| 6) Purpose of Issue | Rights issue is done by a company when it wants to raise fresh funds but wants to give a chance to their existing members to increase their shareholding. | When company has accumulated huge profits or reserves and company wants to reward its existing Equity shareholders, company issues Bonus shares. |
4) Transfer of Shares and Transmission of Shares :
| Points | Transfer of Shares | Transmission of Shares |
| 1) Meaning | Transfer of shares means voluntarily or deliberately giving away one’s shares to another person by entering into a contract with the buyer. | It means transfer of ownership of a member’s shares to his legal representative due to operation of law. It takes place on death, 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 gift. | It is done when the member dies or becomes insolvent or insane. |
| 3) Nature of Action | It is a voluntary action taken by the member. | It is an involuntary action. It is due to operation of law. |
| 4) Parties involved | In 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 member in case of death of the member or the legal representative. |
| 5) Instrument of transfer | Transfer requires Instrument of transfer. It is a contract between the transferor and transferee. | 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 receive some consideration (money) i.e. the buyer has to pay for the shares. (Except given as gift.) | No consideration is involved here. The legal heir or official receiver need not pay for the shares. |
| 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 |
Q.5 Answer in brief.
1) What is Book Building Method?
Answer: Under this method, the issuer company determines the number of shares and the issue price at which its shares will be sold by bidding process. The company issues a Red Herring Prospectus which contains price range or price band and asks the investors to bid on it. The lower end of the price band is called as ‘floor price’ while the highest end is called as ‘cap price’ or ‘ceiling price’.
The final price at which shares are offered to the investors is called as ‘cut-off’ price. Investors can bid any number of shares that they are willing to buy at any price within the price band. Bidding is kept open for 5 days. The bids along with the application money is to be submitted to the Lead Merchant Bankers called as ‘Book Runners’ who enter the bids in a book.
After bidding is over, the company fixes ‘cut-off price’ based on the highest or best price at which all 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.
A company can make Public offer through two methods as follows
1) Initial Public Offer (IPO): Initial Public Offer refers to the process of offering shares of a company to the public for the first time. A new company or an existing company which had raised its capital earlier from promoters or other investors may offer its shares to the public when it is in need of fresh funds. The first time, the company offers its shares to the public is called as Initial Public offer.
2) Further Public Offer or Follow on Public Offer (FPO): When a company issues shares to the public after an IPO, it is called as further (Follow on) public offer. Thus, every issue of shares by a listed company after its IPO is called as FPO. FPO leads to an increase in the subscribed capital of a company.
2) State the provisions for Rights Issue.
Answer: When a company wants to raise further capital, it can issue shares to its existing Equity shareholders in proportion to their existing shareholding. Such an issue of shares is called as ‘Rights Issue’ of shares.
A company making Rights Issue has to fulfill the following provisions.
a) Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
b) A company has to send ‘Letter of offer’ to the existing shareholders at the time of issuing Rights shares.
c) 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 offer.
iii) the right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
d) The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
e) If a shareholder does not respond to the Rights Issue offer within the stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
f) The company has to obtain minimum subscription i.e. 90% of the issue.
3) State the provisions related to Bonus Shares.
Answer: Following are the provisions related to Bonus Issue:
a) A company can issue Bonus Shares only out of :
i) Free reserves or
ii) Securities Premium Account or
iii) Capital Redemption Reserve Account
b) A company cannot issue bonus shares only out of reserves created by Revaluation of Assets.
c) It also cannot issue Bonus Shares instead of paying dividend.
d) Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
e) Bonus shares are fully paid up shares.
f) Shareholders cannot renounce i.e. give away their Bonus shares to another person.
g) There is no minimum subscription to be collected.
4) State the general principles/rules for the allotment of shares.
Answer: These are rules that a company must follow in addition to the provisions of the Companies Act,
(1) Proper Authority: The Board of Directors or the allotment committee set up by the Board has the authority to allot shares.
(2) Allotment must be against application only: A company can allot shares only if it has received a written application for shares from the applicant.
(3) 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.
(4) Absolute and Unconditional allotment: Shares should be allotted on the same terms as stated in the prospectus and application form. No change in the terms of allotment or new conditions can be added at the time of allotment.
(5) Communication: Company has to inform the applicant that shares have been allotted to him by sending a letter of allotment or allotment advice. This letter gives details of number of shares allotted, amount of Allotment money to be paid, etc.
(6) 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.
If a company allots shares after fulfilling all the above mentioned requirements or provisions, such an allotment is called as ‘Regular Allotment’. But if even one provision is not satisfied, then it is called ‘Irregular Allotment’ and such allotment is invalid.
5) State the contents of Shares Certificate.
Answer:
It is a registered document issued by a company which is an evidence of ownership of a specified number of shares of the company. A share certificate is prima facie evidence of title to shares.
Contents of Share Certificate:
Share certificate should be in Form SH-1 as prescribed under Companies (Share Capital and Debenture) Rules, 2014.
Following are the contents of a share certificate
i) Name of the Company, CIN, Registered office address.
ii) Folio Number
iii) Share Certificate Number
iv) Name of Member
v) Nature of share, number of shares, and distinctive number of the shares.
vi) Amount paid on shares
vii) Common Seal, if any, and signature of two Directors and Company Secretary.
6) What are the effects of forfeiture of shares?
Answer:
Effects of forfeiture:
i) 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.
ii) 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.
iii) 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.
7) When can the Board of Directors refuse transfer of shares?
Answer:
Board of Directors have the authority to refuse registration of transfer of shares. A notice of refusal giving the reasons for refusing transfer by the Board is to be sent to the member within thirty days from the date on which the Instrument of transfer was delivered to the company.
The Board may refuse registering the transfer under the following conditions :
i) When the provisions for transfer of shares as given in the Articles of Association is not fulfilled b the member.
ii) When the instrument of transfer is not as per the rules prescribed under the Companies Act.
iii) When the Instrument is not accompanied b the Share Certificate.
iv) When the company has a lien on the shares to be transferred. A member may appeal to the NCLT against the refusal by the Board within a period of thirty days from date of receipt of refusal notice. If no notice is received, the member can appeal within 60 days in case of a Private Company and within 90 days in case of
a Public Company.
8) Explain Employee stock option scheme.
Answer:
Under this scheme, permanent employees, Directors or officers of the company or its Holding Compan or
Subsidiary company are offered the benefit or right to purchase the Equity Shares of the company at a future date at a pre-determined price.
ESOS encourages employees as they feel proud to be owners of the company for which the are working and company also benefits as it can retain good employees.
Following are the provisions related to ESOS:
a) A company may offer the shares directly to the employees or through an Employee Welfare Trust.
b) The shares are offered at a price lesser than their market price.
c) There is a minimum vesting period of one year.
d) Usually company will specify the lock-in period i.e. period during which employee cannot sell his shares. Lock-in period is minimum 1 year between grant of option and vesting.
e) Shares issued under this scheme does not enjoy any dividend or voting rights till the employees buys the shares.
f) Company has to get the approval of shareholders through special resolution to issue ESOS.
g) Employee cannot transfer his option to any other person nor can he pledge or mortgage the shares issued under ESOS.
h) Company has to set up a compensation committee to administer ESOS. The company has to fulfill the provisions of SEBI (Share Based Employee Benefits) Regulations, 2014.
9) What is calls on shares?
Answer:
At the time of issue of shares, a company may state that the issue price of the shares is to be paid in installments as and when the company demands for it. So when a company demands the shareholder to pay a part or full amount of the balance amount unpaid on shares, it is called as ‘Calls on Shares’.
Thus, besides 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 shareholder. If the shareholder fails to pay the calls, company can forfeit the shares.
Calls can be made only by the Board of Directors in the interest of the company. The company has to send a call letter/notice to the shareholders asking them to pay the call money and give them minimum 14 days notice to pay the call money to the Company’s Banker.
No call can be made for more than 25% of the nominal value of shares. The gap between two calls should not
be less than one month from the date fixed for the payment of last preceding call. The rules and procedure to make calls is given in the company’s Articles of Association.
10) What is transfer of shares?
Answer:
a)Transfer of shares means voluntary transfer of shares by a member of a company in favour of another person. A member may transfer the shares for consideration or give it away as gift. Every member has a right to transfer their shares.
b) In case of public companies, shares are freely transferable subject to the provisions of the Articles of Association. Whereas, in case of Private Company, there are restrictions on free transfer of shares.
c) A member has to apply to the company for transfer of shares b filling the ‘Instrument of Transfer’ and submit the share certificate along with the required transfer fees. Member who is transferring the shares is called as ‘Transferor’ and to whom the shares are to be transferred is called ‘Transferee’.
d) A member can sell either a part or entire shares held by him.
e) Transfer is said to be completed only when transfer is registered in the Register of Members. Under Depository System, transfer of shares is automatically done on the basis of delivery against payment. Once the shares are transferred, the liability of the transferor ends.
f) Stamp duty has to be paid on transfer of shares in physical form but in demat form, no stamp duty is payable.
Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12
Q.6 Justify the following statements.
1) Company has to fulfill certain provisions while making Right Issue.
Answer:
Company making Rights Issue has to fulfill the following provisions.
a) Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
b) A company has to send ‘Letter of offer’ to the existing shareholders at the time of issuing Rights shares.
c) 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 offer.
iii) the right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
d) The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
e) If a shareholder does not respond to the Rights Issue offer within the stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
f) The company has to obtain minimum subscription i.e. 90% of the issue.
2) To Issue Bonus Shares, a company has to fulfill certain provisions.
Answer:
Following are the provisions related to Bonus Issue:
a) A company can issue Bonus Shares only out of :
i) Free reserves or
ii) Securities Premium Account or
iii) Capital Redemption Reserve Account
b) A company cannot issue bonus shares only out of reserves created by Revaluation of Assets.
c) It also cannot issue Bonus Shares instead of paying dividend.
d) Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
e) Bonus shares are fully paid up shares.
f) Shareholders cannot renounce i.e. give away their Bonus shares to another person.
g) There is no minimum subscription to be collected.
3) ESOS is offered by a company to its permanent employees, Directors and Officers.
Answer:
a) ESOS encourages employees as they feel proud to be owners of the company for which the are working and company also benefits as it can retain good employees.
b) Under this scheme, permanent employees, Directors or officers of the company.
c) company offer the benefit or right to purchase the Equity Shares of the company at a future date at a pre-determined price.
d) Company has to get the approval of shareholders through special resolution to issue ESOS.
e) A company may offer the shares directly to the employees or through an Employee Welfare Trust.
4) Company has to fulfill general principles/rules for allotment of shares.
Answer:
Following are the general principles/rules for allotment of shares:
(1) Proper Authority: The Board of Directors or the allotment committee set up by the Board has the authority to allot shares.
(2) Allotment must be against application only: A company can allot shares only if it has received a written application for shares from the applicant.
(3) 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.
(4) Absolute and Unconditional allotment: Shares should be allotted on the same terms as stated in the prospectus and application form. No change in the terms of allotment or new conditions can be added at the time of allotment.
(5) Communication: Company has to inform the applicant that shares have been allotted to him by sending a letter of allotment or allotment advice. This letter gives details of number of shares allotted, amount of Allotment money to be paid, etc.
(6) 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.
5) A company can issue duplicate share certificate.
Answer:
a) A company can issue duplicate share certificate if :
i) Original share certificate has been defaced, mutilated or torn and is surrendered to the company.
ii) It has been proved b the holder that the original share certificate is lost or destroyed.
b) In case of loss of share certificate, the compan puts up a notice in the newspapers to announce the loss of the Share Certificate.
c) If company does not get any response from the public, within the specified time, then the company can issue a duplicate Share Certificate.
d) Duplicate share certificate should be issued within three months from date of application. Company issues it only to registered shareholders.
Thus it is rightly justified that, A company can issue duplicate share certificate.
6) Board of Directors have the authority to forfeit shares.
Answer:
a) If a shareholder fails to pay calls on shares within a certain period, the Board of Directors, if authorised by the Articles of Association, can forfeit i.e. take away the ownership of a member. This is called as forfeiture of shares.
b) Only partly paid up shares can be forfeited.
c) Board can forfeit shares only in the interest of the company.
d) Company has to send a notice of forfeiture to the concerned member. The notice must give minimum 14 days period from the date of service of notice, to make the payment along with interest.
e) If a shareholder fails to pay within this period then Board of Directors have the authority to forfeit shares
7) A member of a Public company can transfer shares.
Answer:
a) Transfer of shares means voluntary transfer of shares by a member of a company in favour of another person.
b) A member may transfer the shares for consideration or give it away as gift. Every member has a right to transfer their shares.
c) In case of public companies, shares are freely transferable subject to the provisions of the Articles of Association.
d) A member can sell either a part or entire shares held by him.
Thus it is rightly justified that, A member of a Public company can transfer shares.
8) The Board of Directors can refuse transfer of shares.
Answer:
a) Transfer of shares means voluntary transfer of shares by a member of a company in favour of another person.
b) Board of Directors have the authority to refuse registration of transfer of shares.
c) The Board may refuse registering the transfer under the following conditions :
i) When the provisions for transfer of shares as given in the Articles of Association is not fulfilled b the member.
ii) When the instrument of transfer is not as per the rules prescribed under the Companies Act.
iii) When the Instrument is not accompanied b the Share Certificate.
iv) When the company has a lien on the shares to be transferred.
d) Therefore board of directors can refuse transfer of shares.
Q.7 Answer the following questions.
1) Explain the classification of share capital.
Answer:
Share capital refers to the capital made up of Equity Shares and Preference Shares. Usually, in share capital, the proportion of Equity shares is more than Preference shares.
CLASSIFICATION OF SHARE CAPITAL
A. Authorised/Nominal or Registered Capital
1) Authorised Capital is the maximum capital authorised by Memorandum of Association that a company can raise by issuing shares. It is also called as Registered Capital.
2) Authorised Capital is calculated considering the need of capital of a company at present and in future.
3) Authorised Capital is also called as Nominal Capital as usually a company never issues the entire Authorised Capital. e.g. ‘M’ Ltd. Company has Authorised Capital of Rs 10,00,000 which can be divided into 1,00,000 Equity shares having a face value of Rs 10 each.
B. Issued and Unissued Capital
1) Issued Capital is that part of Authorised Capital which is offered by the company to prospective investors for subscription. Thus, it is the shares that the company is offering to the public to buy.
2) The balance part of Authorised capital not offered to the public is called as ‘Unissued Capital’.
3) The issued capital of a company may be equal to or less than the Authorised Capital. e.g. ‘M’ 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 will be Rs 6,00,000 divided into 60,000 Equity shares of 10/- each.
C. Subscribed and Unsubscribed Capital
1) Subscribed capital is that part of Issued-capital which has been subscribed or taken up (bought) by investors (subscriber).
2) The public may or may not subscribe for the entire Issued capital. Hence, that part of the Issued capital not subscribed by the investors is called as ‘unsubscribed capital’.
3) Thus, the subscribed capital may be equal to or less than the Issued capital. e.g. If ‘M’ Ltd. Company has Issued capital of Rs 4,00,000 i.e. has issued 40,000 Equity shares, then the company’s subscribed capital can be Rs 3,00,000 divided into 30,000 Equity shares of Rs 10/- each. Hence, the unsubscribed capital will be Rs 1,00,000 divided into 10,000 Equity shares of Rs 10/- each.
D. Called-up Capital, Uncalled Capital and Reserve Capital
1) At the time of Issue, full value of the shares is usually not demanded by the company. Company collects the full value of shares in installments as per its requirement of funds.
2) Each Instalment is called as ‘calls’. Called-up capital is that part of subscribed capital which a company has ‘called’ or demanded to be paid by the shareholders.
3) The balance capital which is not demanded from the shareholders is called as uncalled capital.
4) Reserve Capital is a part of uncalled capital. 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.
e.g. ‘M’ Ltd. Company may have called up capital of Rs 1,50,000 i.e. 30,000 Equity shares of face value of Rs 10/- each out of which Rs 5/- per share has been called up/demanded by the company.
If the company decides to keep Re. 1/- per share as capital to be collected at the time of the winding up, the Reserve Capital will be Rs 30,000 i.e. 30,000 equity shares of 10/- each where Re. 1 per share is kept as Reserve Capital. Rs 1,20,000 i.e. 30,000 Equity shares where Rs 4 per share which will be called up in future.
E. Paid-up Capital and Calls in Arrears :
1) Paid up capital is the total amount of money actually paid up by the shareholders when the company has called up or demanded them to pay.
2) The amount not paid up by the shareholders is called up as Calls in Arrears or unpaid calls.
3) e.g. ‘M’ Ltd. company has made a call of Rs 5 per share, so if all the shareholders has paid the calls, then the paid up capital will be Rs. 1,50,000 (30,000 Equity shares X Rs 5 per share). But if for e.g. 10,000 Equity shares calls are not paid then the paid up capital will be Rs 1,00,000 (20,000 Equity shares X Rs 5 per share) and Calls-in-Arrears 50,000 (10,000 Equity shares X Rs 5 per share)
2) Explain the two methods a company can use to make its public offer of shares.
Answer: Public Issue or offer means offering the shares to the public. This is the most common method used by companies. The company invites the public to subscribe for its shares by issuing prospectus.
A company can use two pricing methods to offer shares to the public.
(a) Fixed Price Issue Method:
1) Under this method, the company states in its prospectus, the quantity and the price at which the shares are offered to the public.
2) The subscribers/investors are asked to pay a certain portion of face value of shares or entire issue price along with the application. The company comes to know the demand of its shares only after the subscription period ends.
3) Company can issue shares at par or premium. Fixed Price method is used for all types of issues i.e. Public Issue, Right Issue, ESOS, etc.
(b) Book Building Method :
1) Under this method, the issuer company determines the number of shares and the issue price at which its shares will be sold by bidding process.
2) The company issues a Red Herring Prospectus which contains price range or price band and asks the investors to bid on it. The lower end of the price band is called as ‘floor price’ while the highest end is called as ‘cap price’ or ‘ceiling price’.
3) The final price at which shares are offered to the investors is called as ‘cut- off’ price. Investors can bid any numbers of shares that they are willing to buy at any price within the price band. Bidding is kept open for 5 days. The bids along with the application money is to be submitted to the Lead Merchant Bankers called
as ‘Book Runners’ who enters the bids in a book.
3) After bidding is over, company fixes ‘cut off price’ based on the highest or best price at which all 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.
3) Explain briefly the different types of shares offered b a company to its existing equity shareholders.
Answer: A company can raise funds by offering shares to its existing Equity shareholders as follows:
1) Rights Issue: When a company wants to raise further capital, it can issue shares to its existing Equity shareholders in proportion to their existing shareholding. Such an issue of shares is called as ‘Rights Issue’ of shares.
Whenever a company makes further issue of shares, the existing Equity shareholders have ‘pre-emptive rights’ to subscribe to the new shares offered by the company.
Company making Rights Issue has to fulfill the following provisions.
a) Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
b) A company has to send ‘Letter of offer’ to the existing shareholders at the time of issuing Rights shares.
c) 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 offer.
iii) the right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
d) The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
e) If a shareholder does not respond to the Rights Issue offer within the stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
f) The company has to obtain minimum subscription i.e. 90% of the issue.
2) Bonus Issue / Bonus Shares: Bonus shares are fully paid shares issued free of cost to the existing equity shareholders in proportion to their shareholdings.
Usually financially sound companies issue Bonus Shares out of its accumulated distributable profits or reserves. Hence as the profits or reserves are capitalised, it is also called as ‘Capitalisation of Profits or Reserves.
Following are the provisions related to Bonus Issue:
a) A company can issue Bonus Shares only out of :
i) Free reserves or
ii) Securities Premium Account or
iii) Capital Redemption Reserve Account
b) A company cannot issue bonus shares only out of reserves created by Revaluation of Assets.
c) It also cannot issue Bonus Shares instead of paying dividend.
d) Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
e) Bonus shares are fully paid up shares.
f) Shareholders cannot renounce i.e. give away their Bonus shares to another person.
g) There is no minimum subscription to be collected.
4) Explain the statutory provisions for allotment of shares.
Answer: When a company gives shares to an applicant based on the application submitted, it is called
as Allotment of Shares.
The company issues prospectus and application form. Applicant (subscribers) fills the form and submits it, with application money to the company’s bankers. The Board of Directors approves the acceptance of such applications in the Board meeting by passing resolution. This is called as allotment of shares.
Statutory Provisions for Allotment of Shares :
(1) 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. This prospectus must be signed by every proposed Director (in case of newly formed company) or director or his duly authorized advocate.
(2) Application Money: The Companies Act states that along with the application form, the applicant has to pay a minimum of 5% of the nominal amount of the shares or such other amount as specified b SEBI. SEBI has specified (for public companies) the application money to be minimum 25% of the nominal amount of shares.
(3) Minimum Subscription: Minimum subscription is the minimum amount of shares that must be taken or bought by the subscribers. This amount is mentioned in the prospectus. It must be collected within thirty (30) days from issue of prospectus. SEBI has stated minimum subscription should be 90% of the issue.
(4) Closing of subscription list: As per SEBI, the subscription list must be kept open for atleast three working days and not more than ten working days. Applicants can apply for shares only when the subscription list is open.
(5) Basis of allotment: Allotment of shares will be on the basis which will be decided for each category of subscribers. Allotment will be as per the minimum application size as fixed b the company.
(6) Over subscription: Over subscription means when application received for shares are more than the number of shares offered by the company. SEBI does not allow any allotment in excess of securities offered through offer document or prospectus. However, it may permit to allot not more than 10% of the net offer.
(7) Permission to deal on Stock Exchange: Every company, before making a public offer shall apply to one or more recognised Stock Exchanges to seek permission for listing its shares with them. The prospectus shall mention the name of the Stock Exchange and the fact that an application for permission to list in that stock
exchange has been made by the company.
(8) Appointment of Managers to the issue and various other agencies: Company has to appoint one or more Merchant Bankers to act as managers to the public issue. It also has to appoint Registrar to the issue, Collecting Bankers, Underwriters to the issue and Brokers to the issue, self-certified syndicate banks, advertising agents etc.
5) Explain briefly the procedure for allotment of shares.
Answer: When a company gives shares to an applicant based on the application submitted, it is called
as Allotment of Shares.
Allotment of shares means distributing shares to those applicants who have submitted a written application along with the application money.
Following is the procedure for allotment of shares:
(1) Appointment of Allotment Committee:
a) When the subscription list is closed the Secretary informs the Board of Directors to make preparations for allotment of shares.
b) If the issue is par subscribed or under subscribed, the Board can do the allotment of shares. But if the issue is oversubscribed, the Board has to appoint an Allotment Committee to undertake the work of allotment.
c) The Allotment Committee will decide the basis of allotment and submit a report to the Board.
(2) Hold Board Meeting to Decide Basis of Allotment:
a) Board Meeting is held to approve the allotment formula suggested by the Allotment Committee.
b) A representative of SEBI is also present when the allotment committee prepares the allotment formula.
Once the allotment formula is approved, the application and allotment list is made.
c) This list contains the names of the allottees i.e. the applicants who will be allotted shares. The list has to be signed by the Chairman and Secretary.
(3) Pass Board Resolution for Allotment:
a) At the board meeting, a resolution is passed to allot shares. The resolution also authorizes the Secretary to issue letters of allotment and letters of regret.
b) Secretary has to send Letter of Allotment to allottees i.e. those applicants whose names appear in the application and allotment list.
c) Secretary has to send 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.
4) Collection of Allotment Money:
a) The letter of allotment states the money to be paid by the applicant on allotment of shares. The money has to be paid in the Bank specified by the company within the stipulated time.
b) For all public issues and Rights Issue (from Jan. 2016) ASBA is mandatory.
(5) Arrangement Relating to Letters of Renunciation:
a) An applicant who has been allotted shares can renounce the shares in favour of another person.
b) The applicant has to fill up a form for renunciation and submit it with the original copy of the letter of allotment to the company.
c) After approval from the Board, Secretary enters the name of the new allottees in the application and allotment list.
(6) Arrangement Relating to Splitting of Allotment Letters:
a) Sometimes, the applicant who has been allotted shares can request for splitting of allotment letters.
b) Splitting means putting the shares in one or more names.
c) After getting the approval of the Board for the splitting, Secretary enters the details of the split in the list of split allotments. Secretary has to also issue split letters.
(7) File Return of Allotment:
a) Secretary has to file a ‘Return of Allotment’ with the Registrar of companies within 30 days of allotment of shares.
b) The return of allotment contains details of allotment of shares including the names and addresses of allottees, value of shares allotted, amount paid or payable on each shares, etc.
(8) Prepare Register of Members and Issue Share Certificate:
a) Secretary has to enter the names of all those applicants who have paid the allotment money in the Register of Members.
b) Secretary also has to prepare the Share Certificates and distribute it to all the members within two months of allotment of shares.
c) In case of shares held in electronic form (dematerialized), the entries of applicants are made by the Depository.
12th Commerce SP Textbook Solution
| Chapter Name | Solution Link |
| 1) Introduction to Corporate Finance | Click Here |
| 2) Sources of Corporate Finance | Click Here |
| 3) Issue of Shares | Click Here |
| 4) Issue of Debentures | Click Here |
| 5) Deposits | Click Here |
| 6) Correspondence with Members | Click Here |
| 7) Correspondence with Debenture holders | Click Here |
| 8) Correspondence with Depositors | Click Here |
| 9) Depository System | Click Here |
| 10) Dividend Interest | Click Here |
| 11) Financial Market | Click Here |
| 12) Stock Exchange | Click Here |
| Textbook Solutions of 12th Commerce (All Subjects) | Click Here |
| Free pdf of 12th Commerce Textbooks | Click Here |
| 12th Commerce IT MCQ Preparation (Online Test) | Click Here |
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