Company Shares and Rights Quiz

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Questions and Answers

What event does NOT trigger the compulsory conversion of SR equity shares into ordinary shares?

Company issuing preference shares (correct)

Demise of the promoter

SR shareholder resignation from an executive position

Merger or acquisition of the listed entity

Which type of shares cannot be issued solely in a company without having equity shares that possess voting rights?

Non-voting equity shares

Preference shares only (correct)

Ordinary shares

Equity shares with preferential rights

Which right is NOT typically associated with preference shares compared to equity shares?

Priority in liquidation

Voting rights (correct)

Right to dividends

Claim on assets

What is the consequence of the provision regarding the issuance of shares with superior rights?

Companies may still issue shares with inferior rights compared to existing equity shares. Signup and view all the answers

What happens if a company does not have equity shares with voting rights?

It cannot pass resolutions in general meetings. Signup and view all the answers

What distinguishes shares held as stock-in-trade from those held as investment?

The intention behind holding Signup and view all the answers

What is a characteristic of equity shares?

They grant voting rights Signup and view all the answers

Which type of preference share allows the holder to claim dividends before other shareholders?

Cumulative preference shares Signup and view all the answers

Which type of preference share cannot be redeemed?

Irredeemable preference shares Signup and view all the answers

What is a requirement for a company to issue equity shares?

Equity shares with voting rights Signup and view all the answers

What is a defining feature of participating preference shares?

They allow participation in profit sharing Signup and view all the answers

What limitation applies to differential voting right shares?

Conversion of existing shares is restricted Signup and view all the answers

What must be disclosed in a company's Board's Report concerning differential voting rights?

Details of rights and restrictions Signup and view all the answers

What must be done first if neither the Memorandum, Articles, nor the terms of issue allow for the variation of rights of preference shareholders?

Alter the Memorandum or Articles to permit variation. Signup and view all the answers

What is required if a change in the terms of securities is proposed for listed companies?

Obtain prior approval from the stock exchange with a 21-day notice. Signup and view all the answers

In which situation is it sufficient to hold a separate meeting of only one class of shareholders?

When the variation affects only one class. Signup and view all the answers

What type of resolution must be passed regarding the variation of rights?

Special resolution. Signup and view all the answers

What is the time frame within which the prescribed e-Form MGT-14 must be filed after passing the resolution?

30 days. Signup and view all the answers

What must a company do if dissenting shareholders apply to the Tribunal?

File a copy of the Tribunal's order with the Registrar within 30 days. Signup and view all the answers

What action is advised to ensure that equity shareholders give consent during a variation affecting preference shareholders?

Seek their consent at a class meeting. Signup and view all the answers

What is the effect of the owner of preference shares with regard to transfer of debt?

The owner has the right to deal with and sell those shares. Signup and view all the answers

How should a listed company pass a special resolution according to the mentioned procedure?

By postal ballot only. Signup and view all the answers

Under what condition can a private company have disproportional voting rights?

If stated in the Memorandum or Articles of Association. Signup and view all the answers

How are voting rights allocated for preference shareholders?

In direct proportion to the total paid-up share capital. Signup and view all the answers

What is required for a person owning both equity and preference shares to be counted as a single member?

All particulars provided must be the same. Signup and view all the answers

What action can the financial corporation take regarding thirty lakh preference shares when there is no material evidence against it?

Sell the shares without restrictions. Signup and view all the answers

According to the provisions exempted for private companies, what happens to voting rights?

They can vary if specified in the company's governing documents. Signup and view all the answers

Which Act has no provisions that restrict the owner of preference shares from selling them?

Indian Contract Act, 1872. Signup and view all the answers

What is required for voting by poll in a company?

Proportional representation based on paid-up capital. Signup and view all the answers

What does Section 46 of the Companies Act state regarding share certificates?

Share certificates are prima facie evidence. Signup and view all the answers

What does Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018 pertain to?

Submission of audit reports. Signup and view all the answers

Which form is associated with the transfer and transmission of securities?

SH-1 Signup and view all the answers

What is included in Appendix 2 related to share certificates?

Specimen of Affidavit for loss of certificates. Signup and view all the answers

Which section addresses the punishment for personation for acquisition of securities?

Section 381 Signup and view all the answers

Which of the following sections became effective on 12-9-2013?

Section 2(55) Signup and view all the answers

What document must accompany the application in Form NCLT-1?

The particulars of registration Signup and view all the answers

What is the purpose of the Register for issuance of duplicate and renewal of share certificates?

To document lost share certificates. Signup and view all the answers

Which form is used for keeping a register of members?

SH-2 Signup and view all the answers

Which of the following is NOT required to be included in the application for variation of shareholders' rights?

The list of all company employees Signup and view all the answers

Who should ideally make the petition regarding the variation of rights?

All dissentient shareholders or one or more on behalf of the others Signup and view all the answers

How long before filing the petition must the applicant advertise the application in a vernacular newspaper?

At least 14 days Signup and view all the answers

What information must be included about shareholders who did not consent to the variation?

The number of shareholders who did not consent and the number of shares held by them Signup and view all the answers

In what languages must the application be advertised?

In the principal vernacular language and English Signup and view all the answers

What must the applicant do if they receive any objections to the application?

Serve a copy of the objections to the Registrar of Companies and Regional Director Signup and view all the answers

Which document outlines the rights attached to the different classes of shares?

The memorandum or articles authorizing the variation Signup and view all the answers

Study Notes

Shares: Shares are considered goods, not claims, and are movable property.
Distinction between shares: Shares held as stock-in-trade versus shares held as investment are distinguished based on the specifics of a particular company's business.
Equity Shares: Equity shares are the fundamental capital structure of a company. They do not carry rights that automatically vest in the holders.
Differential rights: Some companies issue equity shares but with different voting rights or other benefits.
Preference Shares: These shares have specific requirements and types. For instance, some are cumulative where dividends accumulate if not paid in a given year and others are not cumulative.
Cumulative Preference Shares: Accumulate unpaid dividends.
Non-cumulative Preference Shares: Dividends not paid one year are lost.
Participating Preference Shares: Shares are entitled to partake in a company's surplus.
Non-participating Preference Shares: Shares do not participate in these benefits.
Redeemable Preference Shares: Shares can be redeemed in a defined timeframe.
Irredeemable Preference Shares: Cannot be redeemed.
Convertible Preference Shares: These shares have the option to be transformed into equity.
Non-convertible Preference Shares: Shares cannot be transformed into equity.
Voting rights on preferential shares: This specifies the circumstances under which preference shareholders can have voting rights. Exemptions to private companies on voting rights exist. The voting rights are prorated based on the total paid-up share capital.
Issuance of Preference Shares: Specific requirements for issuance exist.

Part I (Page 2): Important Provisions at a Glance

Shares Details: Provides a concise overview of significant provisions in the Companies Act of 2013, categorized for easy reference.

Part I (Page 3): Additional Matters Dealt With

Matters dealt with under CA 2013: Highlights the variety of rules and regulations concerning share issuance, including matters around the issuance of shares at a premium or discount, handling of share certificates and resolutions made by the company.
Forms and Nos: Lists the forms, used for corporate transactions like issuing shares, related to specific sections of the Companies Act 2013.

Part I (Page 4): Distinction Between Shares Held as Stock-in-Trade and Investment

Tests for investment or stock-in-trade: Details tests used when a company has shares that are held in the course of its trade. The tests examine factors like the frequency of transactions, how accounts are kept, the magnitude of shares purchased and sold and the ratio between them. The purpose of these tests is to distinguish between shares held in the course of trade and investment.

Section 43: Equity share capital and preference share capital are the two kinds of shares in a company. Equity shares have voting rights or differential rights (e.g., priority in dividends or repayment of capital). Preference shares have a preferential right to dividend or repayment of capital.
Exemption to Specified IFSC Public Company: This section clarifies that some regulations may not apply to specific types of public companies.
Exemption to Private Company: This section clarifies certain provisions around specific company types (private) do not have to adhere to certain classifications around shares.
Additional Equity Rights: The detailed rights included for equity shareholders.
Additional Preference Rights: Details the circumstances where shareholders or debenture holders can exercise voting or other rights.

Part I (Page 6): Issue of shares with superior rights

SEBI (LODR) Regulations: Regulation of listed entities
Conditions of superior rights: Rules for issues granting superior rights to shareholders, such as bonus, or split issues.

Part I (Page 7): Equity shares with differential rights

Differential rights: Conditions relating to equity shares; voting rights, and other benefits (e.g., dividend).
Dissentient shareholders: Clarification on procedure for dissentient shareholders to appeal to the Tribunal.

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Description

Test your knowledge on the various types of company shares, their rights, and the rules governing their issuance. This quiz covers essential concepts related to equity and preference shares, including voting rights and dividend claims. Engage with questions that will enhance your understanding of corporate finance.