Class 12 Accountancy Notes
Unit – 5: Accounting for Share Capital
Q.1.
Define the term Company. Mention its features. 2001,
2009
Ans: Company: A Company is an association of many persons who contribute money
or money’s worth to a common stock and employs it for a common purpose. The
common stock so contributed is denoted in terms of money and is called capital
of the company. The persons who contribute it or to whom it belongs are
members. The proportion of capital to which each member is entitled is his
share.
According to
Section 2 (20) of the Companies Act 2013
“Company means a company formed and registered under this Act."
Characteristics
of a Company:
a)
Artificial Person: A company is an artificial
person, which exists only in the eyes of law.
b)
Separate Legal entity: A company has a
separate legal entity distinct from its members and is not affected by changes
in its membership.
c)
Perpetual succession: A company has a
continuous existence. Its existence does not affected by admission, retirement,
death or insolvency of its members.
d)
Limited Liability: The liability of every
member is limited to the amount he has agreed to pay to the company on the
shares held by him.
e)
Transferability of Shares: The shares of a
company are freely transferable by its members except in case of a private
company.
Q.2. What do you mean by shares? What
are its various types? Explain them. 1999,
2000, 2016, 2017, 2020
Ans: A share is the interest of a shareholder in a definite
portion of the capital. It expresses a proprietary relationship between the
company and the shareholder. A shareholder is the proportionate owner of the
company.
Section 2(84) of
the Companies Act’ 2013 defines a share as, “A share in the share capital of a
company and includes stock except where a distinction between stock and shares
is expressed or implied”.
In the words of Farwell J. “A share is the
interest of a shareholder in the company, measured by a sum of money, for the
purpose of liability in the first place, and of interest the second, but also
consisting of a series of mutual covenants entered into by all the shareholder
inter se in accordance with the companies act”.
Types of shares:
According to
section 43 of the Companies Act 2013, a company can issue only two types of
shares:
(b) Equity shares; and
(a) Preference shares. 2018, 2019
Equity Share:
According to Sec. 43 (a) of the Companies Act 2013 "an equity share is
share which is not preference share". An equity share does not carry any
preferential right. Equity shares are entitled to dividend and repayment of
capital after the claims of preference shares are satisfied. Equity shareholders
control the affairs of the company and have right to all the profits after the
preference dividend has been paid.
Features of equity shares:
a) Equity
shareholders are the primary owners of a company.
b) Equity
shareholders have voting rights and decision making powers.
c) Rate of
dividend varies depending on the availability of surplus funds.
Preference Share:
According to Sec. 43 (a) of the Companies Act 2013, a share that carries the
following two preferential rights is called ‘Preference Share’:
(i) Preference
shares have a right to receive dividend at a fixed rate before any dividend
given to equity Shares.
(ii) Preference
shares have a right to get their capital returned, before the capital of equity
shareholders is returned in case the company is going to wind up.
Features of preference shares:
a) Preference
share holders are secondary owners of a company.
b) Preference
share holders do not have voting rights except in special cases.
c) Rate of
dividend is fixed in case of preference shares.
Preference shares are further subdivided into: 2018
(a) On the basis
of dividend: Cumulative and Non-cumulative preference shares
Cumulative
preference shares are those which have the right to receive arrear of dividend
before the dividend is paid to the equity shareholders.
Non-cumulative
preference shares are those which do not have the right to receive arrear of
dividends.
(b) On the basis
of participation: Participating and non-Participating preference shares
Participating
preference shares are those which have the rights to participate in remaining
profits after payment of dividends to the equity shareholders.
Non-Participating
preference shares are those which do not have the rights to participate in
remaining profits after payment of dividends to the equity shareholders.
(c) On the basis
of conversion: Convertible and Non-Convertible preference shares
Convertible
preference shares are those which have the right to be converted into equity
shares.
Non-convertible
preference shares are those which do not have the right to be converted into
equity shares.
(d) On the basis
of redemption: Redeemable and Irredeemable preference shares
Redeemable
preference shares are those which are redeemable after the expiry of specific
period of time.
Irredeemable
preference shares are those which are not redeemed by the company except in
case of winding up.
Q.3. Distinguish between the
following:
(a) Partnership Firm and Joint Stock Company
(b) Equity
Shares and Preference Shares 1999, 2005, 2009, 2012
(c) Shares
and Debentures 2002, 2004, 2006, 2008, 2010, 2012, 2014, 2016, 2017, 2018, 2020
(d) Shares and Stock
(e) Difference between Private company and
Public company
Ans: (a) Difference between
Partnership Firm and Joint Stock Company
Basis of Difference |
Partnership |
Joint
Stock Company |
Regulation |
Partnership Firm is formed under Indian
Partnership Act, 1932. |
A Joint Stock Company is formed under Indian
Companies Act, 2013. |
Number of persons |
Minimum number of partners is 2 and maximum 100
for a partnership firm. But in case of limited liability partnership there is
no maximum limit. |
Minimum numbers of members are 7 in case of
a public company and there is no limit for maximum. In a private limited company minimum number
of members is 2 and 200 are maximum. |
Liability |
Liability of a Partnership firm is
unlimited. |
Liability of members is limited to extent of
face value of shares held by him. |
Auditing |
Auditing of books is not compulsory. |
Auditing of books is compulsory. |
Mode of formation |
Registration of a partnership firm is not
compulsory under the Indian Partnership Act, 1932. |
Registration of a company is compulsory
under the Indian Companies Act, 2013. |
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(b)
Difference between Equity Shares and Preference Shares
Basis of Difference |
Preference Share |
Equity Share |
Right of Dividend |
Preference shares are paid dividend before the Equity shares. |
Equity shares are paid dividend out of the balance of profit
available after the dividend paid to preference shareholders. |
Rate of Dividend |
Rate of dividend is fixed. |
Rate of dividend is decided by the Board of Directors, year to
year depending on profits. |
Convertibility |
Preference Shares may be converted into Equity shares, if the
terms of issue provide so. |
Equity shares are not convertible. |
Voting Right |
Preference shareholders do not carry the voting right. They can
vote only in special circumstances. |
Equity shareholders have voting rights in all circumstances. |
Redemption of Share Capital |
Preference shares may be redeemed. |
A company may buy-back its equity shares. |
(c)
Difference between Shares and Debentures
Basis of Difference |
Shares |
Debentures |
Ownership |
Shareholders are the owners of the Company. |
Debenture holders are the Creditors of the Company. |
Repayment |
Normally, the amount of share is not returned during the life of
the company. |
Debentures are issued for a definite period. |
Convertibility |
Shares cannot be converted into debentures. |
Debentures can be converted into shares. |
Restrictions |
Dividend is paid to the shareholders as an appropriation of
profit. |
Interest is paid to the debenture holders as a charge against
profit. |
Forfeiture |
Shares can be forfeited for non-payment of allotment and call
monies. |
Debentures cannot be forfeited for non-payment of call monies. |
(d)
Difference between Shares and Stocks
Basis
of Difference |
Shares |
Stocks |
a)
Paid-up
value |
Shares may be fully paid up or partly paid up. |
Stocks are fully paid up. |
b)
Numbering |
Shares are serially numbered. |
Stocks are not numbered. |
c)
Registration |
Shares are always registered. |
Stock may be registered or unregistered. |
(e) Difference between Public Limited
Company and Private Limited Company
Basis of
Difference |
Private
Company |
Public
Company |
Number of persons |
Minimum number of members is 2 and the maximum 200, excluding
its present or past employee members. |
Minimum number of members is 7 and there is no limit as to
maximum numbers. |
Transfer of Shares |
Transfer of shares is generally restricted by the articles of
association of a private limited company. |
The shares of a public company are freely transferable. |
Number of Directors |
A Private Company must have at least two directors. |
A Public Company must have at least three directors. |
Name |
The word ‘Private Limited’ must be used as a part of the name. |
The word ‘Limited’ must be used as a part of the name. |
Q.4. What is Share Capital? Mention
its various categories. 2014, 2019
Ans: Share Capital: The
capital of a joint stock company is divided into shares which are collectively
called ‘Share Capital’. Share capital refers to the amount that a company can
raise or has raised by the issue of shares. The share capital may be classified
as below (Sec. 2 of the Companies Act, 2013):
a)
Nominal/Authorized/Registered Capital: This is
the amount of the capital which is stated in Memorandum of Association and with
which the company is registered. Nominal capital is the maximum amount which
the company is authorised to raise from the public. 2019, 2020
b)
Issued Capital: Issued capital is that part of
the nominal capital, which is offered to the public for subscription. The
balance of the nominal capital, which is not offered to the public for
subscription, is called unissued capital.
c)
Subscribed Capital: Subscribed capital is that
part of the issued capital, which is applied for by the public. The balance of
the issued capital, which is not subscribed for by the public is called,
unsubscribe capital.
d)
Called up Capital: This is the amount of the
capital that the shareholders have been called to pay on the shares subscribed
for by them. The amount of the subscribed capital, which is not called, is
known as uncalled capital.
e)
Paid up Capital: This represents that part of
the called up capital, which is actually received by the company. The amount of
the called-up capital, which not paid by the shareholders, is called as unpaid
capital or calls in arrears.
f)
Reserve Capital: A company may by special
resolution determine that any portion of its share capital which has not been
already called up shall not be capable of being called-up, except in the event
of winding up of the company. Such type of share capital is known as
reserve-capital.
Q.5. What are the various purposes for
which Securities Premium can be utilised? 2003, 08, 12, 13, 2020
Ans: If Shares are issued at a price, which is more than the face value
of shares, it is said that the shares have been issued at a premium. The
Company Act, 2013 does not place any restriction on issue of shares at a
premium but the amount received, as premium has to be placed in a separate
account called Securities Premium Account.
Under Section 52
of the Company Act 2013, the amount of security premium may be used only for
the following purposes:
a) To write off the preliminary expenses of the company.
b) To write off the expenses, commission or discount allowed on
issued of shares or debentures of the company.
c) To provide for the premium payable on redemption of redeemable
preference shares or debentures of the company.
d) To issue fully paid bonus shares to the shareholders of the
company.
e) In purchasing its own shares (buy back).
Q.6. Can a company issue shares at
discount? If yes, under what conditions? 2003,
2014
Ans: As per sec. 53 of
the Companies Act, 2013, issue of shares at a discounted price is prohibited.
This prohibition applies to all companies, public or private. Any issue of
share at a discounted price shall be void. But a company can issue sweat equity
shares to its directors or employees as a reward to them for their
contributions or conversion of debt into shares. Sweat equity shares are those
which are issued by a company at a discounted price or for consideration other
than cash.
According to
Section 54 of company act 2013, a company is permitted to issue sweat equity
shares provided the following conditions are satisfied:
a) The issue of shares at a discount is authorised by a resolution
passed by the company in its general meeting and sanctioned by the Central
Government.
b) The resolution must specify the maximum rate of discount at which
the shares are to be issued but the rate of discount must not exceed 10 per
cent of the nominal value of shares. The rate of discount can be more than 10
per cent if the Government is convinced that a higher rate is called for under
special circumstances of a case.
c) A company can issue sweat equity shares at any time after the
registration of the company.
d) The shares are of a class, which has already been issued.
e) The shares are issued within two months from the date of sanction
received from the Government.
Q. 7. What is Reserve Capital and
Capital Reserve? Distinguish between them. 2017,
2018
Ans: Reserve Capital: Reserve capital is that part of the
subscribed capital of the company which remains uncalled and called only in the
event of winding up of a company. Reserve capital is created out of authorised
capital. Special resolution should be passed at AGM to raise reserve capital.
Capital Reserve: It is that part of reserves
which is created out of capital profits and normally not available for
distribution as dividend. Profits on reissue of shares, premium of issue of
shares and debentures are examples of such reserves. Difference between
Reserve Capital and Capital Reserve are stated below:
Basis of Difference |
Reserve
Capital |
Capital
Reserve |
Meaning |
Reserve
Capital is the part of uncalled capital, which shall not be called except in
the event of winding up of the company. |
It is
that part of the reserves which is created out of capital profits and not
free for distribution as dividend. |
Creation |
It
is created out of uncalled capital. |
It
is created out of capital profits. |
Optional/ Mandatory |
It
is not mandatory to create Reserve Capital. |
Capital
Reserve is mandatory to be created in case of profit on reissue of forfeited
shares. |
Disclosure |
It
is not to be disclosed in the Balance Sheet of the company. |
Capital
Reserve is to be shown in liability side of the balance sheet of the company
under the heading of ’Reserve and Surplus.’ |
Utilisation |
It
is used only in the event of winding up of a company. |
It
is used to write off fictitious or capital losses. |
Q.8.
What Statutory and Statistical Books? Give examples of such books. 2004, 2008, 2014
Ans: Statutory book: Such books are those which a limited company
is under statutory obligation to maintain at its registered office with a view
to safeguard the interests of shareholders and creditors. Main statutory books
are:
1. Register of investments held and their
names, 2. Register of charges, 3. Register of members, 4. Register of debenture
holders, 5. Annual returns, 6. Minute books, 7. Register of contracts, 8.
Register of directors.
Statistical Books: In order to keep a
complete record of numerous details of certain transactions and activities of
the company the following statistical books are usually maintained by joint
stock companies in addition to statutory books. The keeping of such books are
optional. The main books are:
1. Share application and allotment
book, 2. Share calls book, 3. Share certificate book, 4. Debenture application
and allotment book, 5. Debenture calls book, 6. Dividend book, 7. Debenture
interest book, 8. Agenda book
Q.9. What do you mean by forfeiture of shares and re-issue
of shares? How shares are forfeited and re-issued? 2012, 2015, 2016, 2018, 2019
Ans: Forfeiture of shares: Cancellation of shares due to
non-payment of allotment and call money is called forfeiture of shares. A
company has no inherent power to forfeit shares. The power to forfeit shares
must be contained in the articles. Where a shareholder fails to pay the amount
due on allotment or any call, the directors may, if so authorized by the
articles, forfeit his shares. Shares can only be forfeited for non-payment of
allotment and calls. An attempt to forfeit shares for other reasons is illegal.
Thus where the shares are declared forfeited for the purpose of reliving a
friend from liability, the forfeiture may be set aside.
Before the shares are forfeited
the shareholder:
i) Must be
served with a notice requiring him to pay the money due on the call together
with interest;
ii) The
notice shall specify a date, not being earlier than the expiry of 14 days from
the date of service of notice, on or before which the payment is to be made and
must also state that in the event of non-payment within that date will make the
shares liable for forfeiture;
iii) There
must be a proper resolution of the board;
iv) The power
of forfeiture must be exercised bonafide and for the benefit of the company.
A person, whose shares have been
forfeited, ceases to be a member of the company. But he shall remain liable to
pay to the company all moneys which at the date of forfeiture were payable by
him to the company in respect of the shares. The liability of such a person
shall cease as and when the company receives payment in full in respect of the
shares.
Reissue of the forfeited shares: 2018
The directors of the company have the power to re-issue the forfeited shares on
such terms as it think fit. Thus the forfeited shares can be reissued at par,
or at premium or at discount. However, if the forfeited shares are reissued at
discount, the amount of discount should not exceed the amount credited to the
share forfeiture A/c. If the discount allowed on reissue is less than the
forfeited amount there will be the surplus left in the share forfeited A/c.
This surplus will be of the nature of capital profits so it will be transferred
to the Capital Reserve A/c.
Procedure
for reissue of forfeited shares
a) The forfeited shares may then be disposed by sale or in any other manner
as directed by the Board.
b) Short particulars of reissued shares will be advised to the stock
exchange concerned.
c) To give effect to the sale of forfeited shares, the Board will authorise
some person, preferably the director or Secretary, to transfer the shares sold
to the purchaser thereof and to make a declaration in connection therewith.
d) The defaulting members will be asked to return the share certificates.
If they fail to do so fresh certificates will be issued.
e) Public and stock exchange will be advised not to deal with the old
certificates.
f) Any surplus arising out of sale after adjusting the amount due to the
company in respect of the shares will be refunded to the member concerned.
Q.10. Briefly explain various
types of company.
Ans: Kinds of
Companies
A. Classification on the
basis of liability
1. Companies with limited liability
(a) Companies limited by guarantee [Sec.2(21)]-
where the liability of the members of a company is limited to a fixed amount
which the members undertake to contribute to the assets of the company in the
event of its being wound up, the company is called a company limited b
guarantee.
(b) Companies limited by shares [Sec.2(22)]-
where the liability of the members of a company is limited to the amount unpaid
on the shares, such a company is known as a company limited by shares
2.
Unlimited companies [Sec.2(92)] - A company
without limited liability is known as an unlimited company. In case of such a
company, every member is liable for the debts of the company.
B. Classification on the basis of
number of members
1.
Private company [Sec.2(68)] - A private company is
normally what the Americans call a ‘close corporation’. According to Sec.2(68), a private company
means a company which has a minimum paid-up capital as may be prescribed by its
Articles:
a.
Restricts the right to
transfer its shares, if any. The restriction is meant to preserve the private
character of the company.
b.
Except in case of one
person company, limits the number of its members to 200 not including its
employee-members. Joint shareholders shall be counted as one member only.
c.
Prohibits any invitation
to the public to subscribe for any securities. In other words, a private
company shall not make a public issue of its securities.
A Private company may be:
a.
One Person company [Sec.
2(62)]: It means a company which has only one person as a member. All the
provisions of a private company is also applicable to this company.
b.
Small Company [Sec.
2(85)]: A company shall be a small company only if it’s paid-up capital does
not exceed Rs.50 lakhs or such higher amount as may be prescribed (not being
more than Rs. 5 crores) and its turnover does not exceeds Rs. 2 crores or such
higher amount as may be prescribed (not being more than Rs. 20 crores)
c.
Other that “One Person
Company” and “Small Company”.
2.
Public company [Sec. 2(71)] - A public company means
a company which –
a. is not a private
company
b. is a private company
which is a subsidiary of a company which is not a private company.
c. has a minimum paid-up
capital as may be prescribed by the articles.
C. Classification on the basis of
control
1. Holding company-Section 2(46) - A company is known as the holding company of another company if is has
control over that other company.
2.
Subsidiary company-Section 2(87) - A company is known
as a subsidiary of another company when control is exercised by the
latter(called holding company) over the former called a subsidiary company.
A company is deemed to be
a subsidiary of another company when:
a.
where the company
controls the composition of Board of Directors of the subsidiary company
b.
where the company holds
more than one- half the nominal value of equity share capital of another
company
c.
where a company is
subsidiary of another company, which is itself is subsidiary of the controlling
company.
D. Classification on the
basis of ownership
1.
Foreign company [Sec 2(42)]- it means any company
incorporated outside India which has an established place of business in India.
2. Government company [Sec 2(45)] - A Government company means any company in which not less than 51 % of the
paid-up share capital is held by-
a.
the Central government
b.
any State government or
governments
c.
partly by the Central
government and partly by one or more State governments.
3.
Non-government company: It means a company other
than Government company.
E. Classification on the basis of listing of shares on the stock exchange
1. Listed Company [Sec. 2(52)]: It means a
company which has any of its securities listed on any recognized stock
exchange.
2. Unlisted Company: It means a company other
than listed company.
Q.11. Explain the concept of issue of shares at par, at a
premium and at a discounted price. 2017
Ans:
Shares are divisions of the share capital of a company. There are two basic
types of share capital based on the types of shares which can be issued by a
company i.e. (a) preference shares and (b) equity shares. Shares of a company
may be issued in any of the following three ways:
Ø At Par
Ø At premium
Ø At discount
When
shares are issued and payable in installments then first installment is called
as “application money”. Second installment is called as “allotment money “.
Third installment is called as “first call money” and last installment is
called as “Final call Money”.
Issue of Shares at par: When shares are issued at the face value means when the
issue price is equal to the face value then it is called as the issue of shares
at par.
Issue of Shares at Premium: When shares are issued at a price higher than the face
value then it is called as the issue of shares at premium. The excess of issue
price over the face value is the amount of premium. The premium on issue of
shares is treated as revenue profits.
Issue of shares at discounted price: When the shares are issued
at a price lower than the face value, they are said to be issued at discount.
Any company could not offer the shares at discount when it is a new company and
it is a new class of shares even though of an old company. The discount on
issue of shares is treated as a loss of capital nature.
Q.
12. Write short notes on: 2016
1. Right Issue: Rights Issue is when a listed company which
proposes to issue fresh securities to its existing shareholders as on a record
date. The rights are normally offered in a particular ratio to the number of
securities held prior to the issue.
2. Calls-in-Arrears: The amount
which is not paid by shareholders when money is demanded by the company, such
amount is known as ‘Calls-in-Arrears’. The maximum rate of interest to be
provided on calls in arrear must not exceed 10% per annum. 2018, 2019
3. Calls-in-Advance:
Sometimes, it so happens that a shareholder may pay the entire amount on his
shares even though the whole amount has not been called up. The amount received
in advance of calls from such a shareholder should be credited to "calls
in advance". The maximum rate of interest allowed on calls in advance is
12% per annum. 2018, 2020
4. Minimum Subscription: It means
the minimum amount that, in the opinion of directors, must be raised to meet
the needs of business operations of the company. AS per SEBI guidelines, the minimum
subscription of capital cannot be less than 90% of the issued amount. 2017,
2019
5. Oversubscription
and Pro-rata allotment: When the number
of shares applied is more than the number of shares issued by a company, the
issue of shares is said to be oversubscribed. The company cannot allot shares
more than those offered for subscription. In case of over-subscription, there
are three possibilities arise:
(a) Some applicants may not be allotted any
shares. This is known as ‘rejection of applications’.
(b) Some applicants may be allotted less
number of shares than they have applied for. This is known as partial or
pro-rata allotment.
(c) Some applicants may be allotted the full
number of shares they have applied for. This is known as full allotment.
In such a situation if shares are allotted in
proportion of shares issued to shares applied, then such an allotment is called
partial or prorata allotment. For example, if company allots shares to the
applicants of 70,000 shares. It is a pro-rata allotment in the proportion of
5:7. In such cases, excess application money is transferred to allotment. 2018, 2019, 2020
6. Under subscription: When the
number of shares applied is less than the number of shares issued by a company,
the issue of shares is said to be under subscribed. In this case accounting
entries are passed with the number of shares applied by the public. 2018, 2020
7. Sweat Equity Shares: The
expression ‘sweat equity shares’ means equity shares issued by the company to
employees or directors at a discount or for consideration other than cash for
providing know-how or making available right in the nature of intellectual
property rights or value additions, by whatever name called. The companies will
be allowed to issue Sweat Equity Shares if authorized by a resolution passed by
a general meeting. A company can issue sweat equity share any time after
registration.
Sweat equity
shares are issued for the following purpose:
a) To provide
technical know how to the company
b) To acquire
patent rights
c) Value addition
of companies
8. Issue of Shares in consideration other than cash: A company may issue shares for consideration other than cash to
the vendors who sell their whole business or some assets to the company or to
the promoters for rendering services to the company. When shares are so issued,
there is no receipt of cash and hence it is termed as issue of shares for
consideration other than cash.
9. Preliminary
Expenses: Expenses
incurred to the formation of a company are called ‘Preliminary Expenses’.
Preliminary expenses include the following: -
a) Expenses incurred
in order to get the company registered.
b) Expenses incurred
for the preparation, printing and issue of prospectus.
c) Cost of preliminary
books and Common Seal.
d) Duty payable on
Authorized Capital.
e) Underwriting
Commission etc.
Preliminary Expenses are to be written off out Securities Premium
Account or it may be written off out of the Profit & Loss A/c gradually
over some period. The balance left of preliminary expenses is to be shown in
the asset side of the balance sheet of the company under the heading of
‘Miscellaneous Expenditure’. 2017
10. Bonus
shares: Where company have large amount of undistributed profit and these
profits are capitalised by converting them into shares and issued free of
charge to the existing shareholders, such shares are known as bonus shares.
11. Buy-back
of shares: Buy-back means the repurchase of its
own shares by the company. When a company has substantial cash resources, it
may like to buy its own shares from the market, particularly when the
prevailing rate of its shares in the market is much lower that the book value.
Objectives
of Buy Back: Shares
may be bought back by the company on account of one or more of the following
reasons:
a) To increase promoters holding
b) Increase earning per share
c) Support share price in stock exchange
d) To takeover bid
e) To utilise surplus cash not required by
business
Resources
of Buy Back: A Company
can purchase its own shares from
a) Free reserves such as general reserve,
revenue reserve, surplus.
b) Securities premium account; or
c) Proceeds of any shares or other specified
securities.
Conditions of Buy Back:
The buy-back is authorised by the Articles of association of the
Company;
a) A special resolution has been passed in
the general meeting of the company.
b) Buy-back of equity shares in any financial
year shall not exceed twenty-five per cent of its total paid-up equity capital
in that financial year;
c) The ratio of the debt to equity is not
more than twice.
d) There has been no default in any of the
following
a. in repayment of deposit or interest
payable thereon,
b. redemption of debentures, or preference
shares or
c. payment of dividend, if declared, to all
shareholders.
d. repayment of any term loan or interest
payable thereon to any financial institution or bank;
Procedure
for buy back
a) Where a company proposes to buy back its
shares, it shall, after passing of the special/Board resolution make a public
announcement at least one English National Daily, one Hindi National daily and
Regional Language Daily at the place where the registered office of the company
is situated.
b) The public announcement shall specify a
date of buy back.
c) A draft letter of offer shall be filed
with SEBI through a merchant Banker.
d) A copy of the Board resolution authorising
the buy back shall be filed with the SEBI and stock exchanges.
e) The date of opening of the offer shall not
be earlier than seven days or later than 30 days after the specified date
f) The buy back offer shall remain open for a
period of not less than 15 days and not more than 30 days.
g) A company opting for buy back through the
public offer or tender offer shall open an escrow Account.
12. Employees stock option
plan (ESOP): Employees
stock option plan (ESOP) is an employee benefit scheme under which the company
encourages employees to acquire shares in the company. Under such scheme,
shares are issued to the employees normally at a discounted price. The main purpose of this plan is:
a) To motivate the employees to work together
for the common goal of company’s growth.
b) To give financial benefit to the
employees.
c) To create a feeling of responsibility
amongst the employees.
d) To give better job security and job
satisfaction.
13. Methods of raising capital:
1. Initial Public Offer (IPO): In a capital
market, company can borrow funds from primary market by way of initial public
offer. It is process by which a company sale it securities to the general
public for the first time.
2. Rights Issue: In capital market, rights
issue means selling securities in primary market by issuing shares to existing
shareholders.
3. Private Placement: In this method the capital
issue is sold directly to institutional investors like insurance companies,
banks, mutual funds etc.
4. Offers for Sale: In this case, the company
sells the entire issue of shares or debentures to a merchant banker at an
agreed price, which is normally below the par value.
5. Venture Capital: It is an important source of funds for new technology based industries where the venture capital firm invests funds in exchange of equity in the startup.