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Questions and Answers
What is the main purpose of authorized capital?
What is the purpose of a rights issue?
What is the purpose of a share certificate?
What is the main difference between equity shares and preference shares?
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What is the time frame within which a share certificate must be issued?
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What is disproportionate allotment?
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What is the main difference between a public issue and a private placement?
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What is the purpose of a return of allotment?
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What is the main purpose of sweat equity shares?
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What is the relationship between issued capital and subscribed capital?
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Study Notes
Share Capital
- The total amount of money that a company can raise from its shareholders
- Divided into shares of fixed amount (e.g., ₹10, ₹100)
- Authorized capital: maximum amount of share capital that a company can issue
- Issued capital: amount of share capital that has been issued to shareholders
- Subscribed capital: amount of share capital for which shareholders have paid
- Paid-up capital: amount of share capital that has been paid by shareholders
Types of Shares
-
Equity Shares:
- Represent ownership in the company
- Holders have voting rights
- Entitled to receive dividends
-
Preference Shares:
- Have priority over equity shares in terms of dividend payment and repayment of capital
- Holders do not have voting rights
- Dividend rate is fixed
-
Debentures:
- Represent debt obligation of the company
- Holders have no voting rights
- Receive fixed rate of interest
Issue of Shares
- Private Placement: issue of shares to a select group of investors
- Public Issue: issue of shares to the general public through an initial public offering (IPO)
- Rights Issue: issue of shares to existing shareholders at a discounted price
- Bonus Issue: issue of shares free of cost to existing shareholders
- Sweat Equity Shares: issue of shares to employees of the company as a form of compensation
Share Certificates
- Document issued by the company to shareholders as evidence of their ownership
- Contains details such as:
- Shareholder's name and address
- Number and type of shares held
- Date of issue and distinctive number of the certificate
- Share certificates are issued within 2 months of allotment of shares
Allotment of Shares
- Process of allocating shares to applicants who have applied for them
- Types of allotment:
- Pro-rata Allotment: allocation of shares in proportion to the application money received
- Disproportionate Allotment: allocation of shares in excess of the application money received
- Return of Allotment: statement filed with the Registrar of Companies (ROC) within 30 days of allotment, containing details of allottees and shares allotted.
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Description
Test your knowledge of share capital, types of shares, issue of shares, share certificates and allotment of shares in a company.
