Company Share Capital Overview

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Questions and Answers

Where should the register of members be maintained?

Only at the Board's designated location

At an external auditing firm

At the company's headquarters only

At the registered office or any other authorized location (correct)

Who is primarily responsible for the custody of the register?

The company secretary or an authorized person (correct)

The company president

Any company employee

The chief financial officer

What must be done with all blank forms for share certificates?

They must be printed only with Board authority (correct)

They should be handwritten by the Board members

They are not required to be numbered

They can be printed by any employee

Who can be responsible for the maintenance of books related to share certificates in a company without a secretary?

A specifically authorized Director Signup and view all the answers

Who has the authority to sign and seal share certificates?

The company secretary or an authorized person Signup and view all the answers

What does share capital refer to in a company?

The amount invested in the company for operations Signup and view all the answers

Which type of share capital is not classified as preference share capital?

Equity share capital with differential rights Signup and view all the answers

According to the Companies Act, which of the following is a characteristic of equity share capital?

It can include differential rights Signup and view all the answers

What is a distinguishing feature of a DVR (Differential Voting Rights) share?

It provides fewer voting rights to the shareholder Signup and view all the answers

What does a member in a guarantee company hold?

Membership interest that is transferable Signup and view all the answers

Which of the following correctly defines a 'share' as per the Companies Act?

An interest in the share capital of a company Signup and view all the answers

Which statement regarding the nature of shares is true?

Shares are movable property and transferable according to company rules Signup and view all the answers

What is one of the conditions under which share capital can be altered in a company?

Through a resolution passed by shareholders Signup and view all the answers

What can the securities premium account be used for?

Writing off preliminary expenses Signup and view all the answers

What is the penalty for a company that issues shares at a discounted price?

Fine ranging from one to five lakh rupees Signup and view all the answers

Which of the following is NOT a valid use of the securities premium account?

Paying dividends to shareholders Signup and view all the answers

Under what condition can certain companies use the securities premium account?

As prescribed by the accounting standards Signup and view all the answers

What does section 53 of the Act prohibit?

Issuing shares at discount, except under specific conditions Signup and view all the answers

What is a consequence for an officer who violates the regulations of issuing shares at a discount?

Imprisonment for a maximum of six months or a fine Signup and view all the answers

Which of the following is an allowable use of the securities premium account for specific companies?

Writing off costs for equity shares Signup and view all the answers

Which of the following statements about the securities premium account is true?

It is considered as paid-up share capital for reductions. Signup and view all the answers

What must a company do within seven days after verification if a shareholder's securities have been accepted?

Make payment of consideration in cash Signup and view all the answers

Which of the following statements is not a requirement of the letter of offer?

It can include misleading information under certain circumstances Signup and view all the answers

What is the company prohibited from doing during the buyback offer period?

Issuing new shares, including bonus shares Signup and view all the answers

How must a company pay the consideration for a buyback?

By cash only Signup and view all the answers

What is the maximum time limit for completing a buyback after passing a special resolution?

One year Signup and view all the answers

Which of the following is a restriction on the company's financial activities related to buyback?

It cannot utilize borrowed money for buying back shares Signup and view all the answers

What happens to the offer once it has been announced to shareholders?

It cannot be withdrawn Signup and view all the answers

What type of information must not be included in the letter of offer?

Misleading information Signup and view all the answers

What information is required regarding the date of the board meeting for a buy-back proposal?

The date the buy-back proposal was approved by the board Signup and view all the answers

Which of the following is NOT a required disclosure in the explanatory statement for a buy-back?

The estimated future earnings of the company Signup and view all the answers

What must be included concerning the financial resources for the buy-back?

Sources of funds for the buy-back Signup and view all the answers

Which of the following relates to the auditor's report concerning the buy-back?

The auditors must state that the board's opinion on solvency is based on reasonable grounds Signup and view all the answers

What is one of the additional requirements concerning promoters and directors in a buy-back proposal?

The aggregate shareholding as of the notice convening the general meeting Signup and view all the answers

What must be confirmed regarding financial obligations before a company can initiate a buy-back?

No defaults exist in repayment of financial obligations Signup and view all the answers

Which detail must be provided concerning the buy-back price?

The price at which buy-back of shares shall be made Signup and view all the answers

What is required regarding the method chosen for the buy-back?

The method to be adopted for the buy-back must be disclosed Signup and view all the answers

What details must be included regarding shares that promoters intend to tender for buy-back?

The amount of shares proposed to be tendered Signup and view all the answers

Study Notes

Introduction

Every company limited by shares must have a share capital
Share capital represents the amount invested in the company
Share capital can be altered or increased under certain conditions
A company's share capital can be divided into different classes, with varied rights attached to each class

Nature of Shares

A share represents a member's interest in a company
Shares are included in the definition of "share capital" by the Act
A share represents a shareholder's interest in the company, determining their liability and dividend rights
A share grants various rights and liabilities to the holder
Shares, debentures, and other member interests in a company are classified as movable property
The transfer of shares is subject to the company's articles of association.
A member can transfer "other interests" in the company according to the procedures outlined in the company's articles of association.

Share capital in a company limited by shares is classified into two main types: equity share capital and preference share capital.
Equity share capital is further divided into two categories:
- Equity share capital with voting rights
- Equity share capital with differential rights regarding dividend, voting, or other aspects, as per prescribed rules
Equity share capital, in essence, represents all share capital that is not classified as preference share capital.
Differential Voting Rights (DVR) shares resemble ordinary equity shares but grant shareholders fewer voting rights.

A company is obligated to issue a share certificate to each shareholder upon the allotment of shares.
The share certificate acts as evidence of the shareholder's ownership of the shares.
The share certificate must be signed by at least two authorized individuals from the company, typically the company secretary and a director.
Share certificates can be issued in physical or electronic form.
A duplicate or renewed share certificate is issued if the original certificate is lost or damaged.
The company maintains a register to track renewed or duplicated share certificates.
The register must be maintained permanently at the company's registered office or, alternatively, at the location where the Register of Members is kept.
The company secretary or an authorized individual from the Board assumes responsibility for the custody of the register.

Blank forms used for share certificate issuance are printed on the authority of a Board resolution.
The blank forms are machine-numbered consecutively.
The blank forms, along with related printing materials, are kept secure by the company secretary or an authorized individual from the Board.
The company secretary or authorized individual is accountable to the Board for the management of these forms.
The Board or company secretary (if present) is responsible for maintaining, preserving, and ensuring the safe custody of all books and documents related to share certificate issuance, including blank certificate forms.
If the company doesn’t have a secretary, a Director can be designated by the Board to assume responsibility.

The provisions of the Act regarding the reduction of a company's share capital, with specific exceptions mentioned in Section 52, apply to the securities premium account as if it were the paid-up share capital of the company.
The company can utilize the securities premium account for the following purposes:
Issuing fully paid bonus shares to company members.
Writing off the company's preliminary expenses.
Writing off issuance expenses, commission paid, or discount allowed on the issuance of company shares or debentures.
Addressing the premium payable on the redemption of redeemable preference shares or debentures.
Purchasing the company's own shares or other securities under Section 68.

### Sweat Equity Shares

Sweat equity shares refer to shares granted to employees or directors of the company at a discounted price.
The discounted price is determined based on the fair market value of the company's shares, adjusted for the employee efforts.
Sweat equity shares are intended to provide employees with a stake in the company and incentivize them to contribute towards its growth.

### Other Rules Relating to Shares in a Company

A company can issue shares to a person only if the person has paid for the shares, either fully or partially.
If a company accepts a share application that has not been fully paid, it must specify the terms of payment in the application acceptance letter.
The company must make arrangements with the bank to receive deposits for shares.
The company is required to create and maintain a Share Capital Account for the purpose of recording shares issued and outstanding.
The company must prepare a statement detailing the issue of shares, including the number of shares issued, the price at which they were issued, and the details of the subscribers.
A company cannot issue shares at a discount, with an exception being the issuance of sweat equity.
All shares issued by a company at a discounted price are declared void.
The company is subject to fines and imprisonment for officers who are in default of these rules.
The company can repurchase its own shares or other securities.
Share repurchase, also known as buy-back, is subject to various regulations.

Company Buyback of Shares Rules

The company must obtain its shareholders' approval through a special resolution for a company buy-back.
The company must disclose certain information in an explanatory statement to the shareholders before the general meeting for buyback consideration.
The company can buy back a maximum of 25% of its paid-up share capital.
The buy-back price cannot exceed the fair market value of the company’s shares.
The buy-back price must be determined based on a method approved by the company’s board.
The company must disclose specific details related to the buy-back in its regulatory filings.
The company must ensure that the offer document contains accurate and factual information.
The company cannot issue new shares, including bonus shares, from the date of the buy-back resolution to the offer conclusion, except in specific circumstances.
The company must confirm the opening of a dedicated bank account for buy-back payments.
The company cannot withdraw the offer once it is announced.
The company cannot use borrowed funds to buy back shares.
The company cannot use funds from an earlier share issue to buy back shares.

Time Limit for Completion of the Buyback

The buy-back process must be completed within a year from the date of the special resolution.
The company must make payment to the shareholders within seven days after verifying the buy-back application.
The company must return the share certificates to shareholders who did not have their applications accepted.

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Description

This quiz explores the fundamentals of share capital, including its nature, types, and the rights associated with shares. Understand how share capital is essential to a company's structure and the implications for shareholders. Test your knowledge of the definitions and classifications of shares within a company.