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True

Explanation: The liability of a shareholder of a public limited company is limited by shares. That is, the liability is limited to the extent of amount unpaid on their shares. In other words, the private property of shareholders cannot be used to pay off liabilities in the event of winding-up or at the time of liquidation of a company.

True 

Explanation: The liability of a shareholder of a public limited company is limited by shares. That is, the liability is limited to the extent of amount unpaid on their shares. In other words, the private property of shareholders cannot be used to pay off liabilities in the event of winding-up or at the time of liquidation of a company.

(d) paid up capital

Bond’s formation and subject matter is equal to debenture. Traditionally, it is issued by govt.

The debenture which are secured either on particular assets of the company called fixed charge or on all assets of the company. If the company is unable to repay the debenture on the due date, the debenture holders can realize their money from the assets mortgaged with them.

In addition to raising of capital by issue of shares a company requiring funds on long term basis may borrow money by issue of debentures.

A debentures certificate contains the terms of the repayment of principal sum at a specified date & term of payment of interest at a fixed percentage.

Correct answer is (d) interest

(d) convertible debentures

(a) other non-current assets

Meaning and Definitions:
A company or a joint stock company is an entity, incorporated by a group of persons through the process of law for undertaking (usually) a business. It is an artificial person and is separate from its members (shareholders). It normally has a share capital divided into units called Shares, the owners of which are known as Members or Shareholders. Unlike partnership, insolvency or death of a member does not affect the life of a company, i.e., the company remains functional even if a members becomes insolvent or dies.

“Company means a company incorporated under this act or any previous company law.”
—Section 2(20) of the Companies Act, 2013

“A company is an artificial person, created by law having separate entity with a perpetual succession and a common seal.”
—Prof. Haney

Characteristics of a Company:

1. Incorporation: A company is an artificial person established through the process of law i.e., the Companies Act, 2013 or any previous company law.

2. Separate Legal Entity: A company is an artificial person having a legal entity separate from its shareholders. It can own property enter into contract, conduct business sue or be sued for its debts and actions. The scope of its activities and the working of the company is regulated by its Memorandum of Association, Articles of Association and Provision of the Companies Act.

3. Perpetual Existence: A company has a perpetual succession not affected by the death. Lunacy or bankruptcy of its members of shareholders. The life of a company comes to an end only by winding up through the process of law.

4. Limited Liability: Liability of its members is limited to the value of the share subscribed by them except in the case of companies incorporated with unlimited liabilities.

5. Transfer ability of Shares : The shares of a company are freely transferable except in case of private companies.

6. Management and Ownership: A company is not run by all the members but by their elected representatives called Directors. Thus, management and ownership are separate.

7. Common Seal: A company may or may not have a common seal. If it has a common seal, it is affixed to all the important documents of the company.

Kinds of Companies:
(a) One Person Company: One person company is a company which has only one person as a member. It is a company incorporated as a private company which has only one member. Rule 3 of the Companies (Incorporation), Rules 2014 provides that:

• Only a natural person being an Indian citizen and resident in India can from one person company or can be nominee for the Role member of one person company.
• One person can form only one “one person company” or become nominee of only one such company.
• It can be formed for charitable purposes.
• It cannot carry out non-banking financial investment activities including investments in securities of anybody corporate.
• Its paid up share capital is not more than Rs 50 lakhs.
• Its average annual turnover should not exceed Rs 2 crores.

(b) Private Company: A private company is one which has minimum paid up. Share capital as may be prescribed and which by its Articles of Association.

• Restricts the, right to transfer its shares if any.
• Except in the case of one person company limits the number of its numbers excluding its present or part employee members to 200.
  Where shares are held by two or more persons jointly they shall be treated as a single member.
• Prohibits any invitation to the public to subscribe for any securities of the company.
  A private company must have atleast 2 members. The name of a private company ends with the words “Private Limited”. [Section 2(68) of the Companies Act, 2013]

(c) Public Company: A public company is a company which:

• is not a private company.
• has a minimum paid up capital as may be prescribed.
• is a private company being a subsidiary of a company which is not a private company.
  A public company must have atleast 7 members. There is no restriction on the maximum number of members.
  The name of a public company ends with the word “Limited”.
  A public company can raise its capital by issue of shares to public for subscription.

No, under the Company Act 2013 not any company can issue their share at discount.

“Subscribed Capital” means such part of the capital which is for the time being subscribed by the members of company.

“Issued Capital” means such capital as the company issue from time to time for subscription. Issue capital is a part of the Authorized Capital.

Reserve Capital means “A part of uncalled capital which has been reserved by the company by passing a special resolution to be called only in the event of its liquidation.”

Utilization of Securities Premium: Under Section 52(2) of the Companies Act, 2013, 

The amount of securities premium reserve may be used only for the following purposes :

1. In writing off the preliminary expenses of the company.
2. For writing off the expenses, commission or discount allowed on issue of shares or debentures of the company.
3. For issuing fully paid bonus shares to the shareholders of the company.
4. For providing for the premium payable on redemption of redeemable preference shares or debentures of the company.
5. For buy back of its own shares and other securities as per Section 68.

The correct answer is : (b) 12% p.a

If articles are silent regarding interest on calls-in-arrears, the minimum rate of interest to be charged is 5%. 

Explanation: Calls-in-arrears are defined as those dues which are not paid by the shareholders on the allotment or on calls within the fixed time. 

The interest on Calls-in-arrears is to be paid by the defaulters and if nothing is provided in the articles then the interest of 5% p.a. is to be applied.

If the articles are silent regarding interest on calls-in-advance, the minimum rate of interest to be charged is 6% p.a. 

Explanation: If the articles are silent, then the provisions of Table A are applicable. As per Table A, interest @ 6% p.a. is paid on calls-in-advance.

Kinds of Share Capital of Company Schedule III of the Companies Act, 2013 requires a company to show:

(1) Authorised or Nominal Capital : According to Section 2(8) of the Companies Act, 2013, “Authorised capital or Nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of a company. It is stated in the Memorandum of Association and is the maximum amount that a company can arise as share capital. It is stated separately for each class of shares, i.e., preference shares and equity shares. It is the maximum amount of share capital under each class of shares which a company can issue for subscription. If a company has to issue more shares than authorised capital, it must increase the authorised or nominal capital first and thereafter issue shares for subscription.

Authorised share capital under each class (equity or preference) may be more or at the most equal to the issued share capital but cannot be less than the issued capital.

(2) Issued Capital: According to Section 2(50) of the Companies Act, 2013, “Issued capital” means such capital as the company issues from time to time for subscription. Thus, issued capital is a part of the authorised capital that is issued for subscription. It includes besides shares issued for subscription. Shares allotted for consideration other than cash, shares subscribed by signatories to the Memorandum of Association and shares taken by directors as qualifying shares. It should be kept in mind that issued capital cannot exceed the company’s authorised share capital.

(3) Subscribed Capital: According to Section 2(86) of the Companies Act, 2013, “Subscribed capital” means such part of the capital which is for the time being subscribed by the members of company. Thus subscribed capital is a part of issued capital which the company has issued for cash or for consideration other than cash. It includes shares issued for subscription and subscribed shares subscribed by signatories to the Memorandum of Association, shares subscribed by the directors as qualifying shares and shares allotted for consideration other than cash.

(4) Called up Capital: It is that part of subscribed capital which is called by the company to pay on shares allotted. It is not necessary for the company to call for the entire amount on shares subscribed for by shareholders. The amount which is not called on subscribed shares is called Uncalled Capital.

(5) Paid up Capital: It is that part of called up capital which actually paid by the shareholders. Therefore, it is known as Real Capital of the company. Whenever a particular amount is called and a shareholder fails to pay the amount fully or partially it is known as Unpaid Calls on Calls-in-Arrears.
Paid up Capital = Called up Capital – Calls in Arrears

(6) Reserve Capital: It is that part of uncalled capital which has been reserved by the company by passing a special resolution to be called only in the event of its liquidation. This capital cannot be called up during the existence of the company. It would be available only in the event of liquidation as an additional security to the creditors of the company.

Meaning of Debenture:
In addition to raising of capital by issue of shares a company requiring funds on long term basis, may borrow money by issue of debentures. A debenture issued by a company is usually in the form of a certificate, given under the seal of the company. Thus, a debenture is a written acknowledgement of a debt taken by the company as these are issued under the seal of the company.

A debenture certificate contains the terms of the repayment of the principal sum at a specified date and the terms of payment of interest at a fixed percent.

According to Section 2 (30) of the Companies Act, 2013 “Debenture includes debentures stock bonds and any other securities of a company whether constituting a charge on the assets of the company or not”.

Types of Debentures:
A company may issue the following types of debentures :
(1) Secured or Mortgage Debentures: These debentures are those debentures which are secured either on particular assets of the company called Fixed Charge or on all assets of the company in general, called a Floating Charge. Fixed charge denies the company from dealing with mortgaged assets, where as the floating charge does not prevent the company from using the assets. If the company is unable to repay the debentures on the due date, the debentureholders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those that have a second claim on the assets charged. In India, debentures have necessarily to be secured.

(2) Unsecured or Naked Debentures: These debentures are those debentures which are not given . any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

(3) Registered Debentures: Names and address of the holders of such debentures are recorded in a register of the company called “Register of Debenture holders”. Such debentures are not freely transferable. The transfer of such debentures requires the execution of a proper transfer deed. Principal amount and interest on such a debenture is paid to the person whose name appears in the company’s register.

(4) Bearer Debentures: Names and address of the holders of such debentures are not recorded in the company and these debentures are transferable by mere delivery. Payment of principal and interest is made to the bearer of such debentures. Coupons are attached with these debentures and the interest is paid to such persons who produce the coupons in the specified bank.

(5) Redeemable Debentures: Redeemable debentures are those debentures which will be repaid by the company either in lump-sum at the end of a specified period or by installments during the lifetime of the company. Most of the debentures are generally of this type.

(6) Irredeemable or Perpetual Debentures : Irredeemable debentures are those debentures which are not repayable by the company during its lifetime. These debentures are repayable only at the time of liquidation of the company.

(7) Convertible Debentures: Convertible debentures are those debentures which are convertible into equity shares or other securities at a stated rate of exchange either at the option of debenture holders or at the option of the company after a specified period. When only a part of the amount of debenture is convertible into shares, such debentures are called “Partly Convertible Debentures”. When the full amount of debenture is convertible into shares such debentures are called “Fully Convertible Debentures”. SEBI guidelines require that where the conversion is to be made at or after 18 months from the date of allotment but before 36 months any conversion in part or whole shall be optional on the part of the debenture holders. Convertible debentures are very popular these days, as they provide liquidity, safety capital appreciation and assured return to the investors.

Holder of preference shares have a right to get their preference share converted into equity share at their option according to the terms of issue called convertible preference shares.

i. Calls-in-Arrears

ii. Paid-up share capital

iii. Equity shares

iv. Issued capital

v. Reserve capital

Preference Shares:
Preference shares are those which carry the following two rights:

• They have a right to receive dividend at a fixed rate before any dividend is paid on the equity shares.
• When the company is wound up they have a right to the return of capital before that of equity shares.

In addition to the above the preference shares may carry some more rights such as the right to participate in excess profits when a specified dividend has been paid on the equity shares or the right to receive a premium at the time of redemption.

Types of Preference Shares:
(i) Cumulative Preference Shares : Cumulative preference shares are those preference shares which carry the right to receive arrears of dividend before dividend is paid to the equity shareholders. For example, a company has 10,000, 7% preference shares of Rs 100 each and dividend for the years 2015 and 2016 has not been paid. The company earns adequate profits in the year 2017. In this case, the company shall pay Rs 2,10,000 as dividend for three years to the preference shareholders before dividend is paid to the equity shareholders.

(ii) Non-Cumulative Preference Shares: Non-cumulative preference shares are those preference shares which do not carry the right to receive arrears of dividend. In the above example, preference shareholders share be entitled to receive dividend only for the year 2017 i.e., Rs 70,000 before dividend is paid to equity shareholders.

(iii) Participating Preference Shares: The Articles of Association of a company may provide that after dividend has been paid to the equity shareholders, the holders of preference shares will also have a right to participate in the remaining profits. The preference shares carrying this right are called Participating Preference Shares.

(iv) Non-Participating Preference Shares : Preference shares which do not carry the right to participate in the profits remaining after equity shareholders have been paid dividend are Non-Participating Preference Shares.

(v) Convertible Preference Shares : Holder of these shares have a right to get their preference shares converted into equity shares at their option according to the terms of issue.

(vi) Non-convertible Preference Shares : When the holders of preference shares have not been conferred the right of getting their preference shares converted into equity shares, such shares are called Non-convertible Preference Shares.

(vii) Redeemable Preference Shares: Such shares are those which will be repaid by the company within a stipulated period in accordance with the terms of issue and the fulfillment of certain conditions laid down in Section 55 of the Companies Act, 2013.

(viii) Irredeemable Preference Shares : Irredeemable preference shares are those the capital of which cannot be refunded before winding up. According to Section 55 of the Companies Act, 2013, no company limited by shares shall issue any preference share which is irredeemable or is redeemable after the expiry of 20 years from the date of its issue.

Allotment of share means distribution of shares between applicant. One applicant can make shareholder after allotment.

As per Section 2 (88) of the Companies Act, 2013, “Sweat Equity Shares” means such equity shares as are issued by a company to its directors or employees as a discount or for consideration other than cash called sweat equity share.

The capital raised by the company through the issue of equity shares is called equity share capital.

This statement is True.

Share forfeited balance is a profit earned by the company at the time of issuing shares, which is not recurring in nature. It is also known as capital profit. Therefore it is to be transferred to Capital Reserve Account.

In this allotment (In over subscription condition). Some application are accepted in full, some are rejected and proportional allotment is made to the remaining application called pro rata allotment.

i. (b) Capital Reserve

ii. (a) Liability side of Balance Sheet

iii. (d) dividends

iv. (a) Prospectus

v. (d) 5%

This statement is False.

In public issues whole amount of share, capital is not called at once but called in several installments such as application money, allotment money and calls money by following SEBI guidelines.

When a shareholder fails to pay the call money or premium on the shares in spite of repeated reminders and warnings, the company forfeits the shares of such defaulters known as forfeiture of shares.

When shares subscribed by the public are greater than the shares offered by the company, it results in over-subscription. In such cases, the company makes allotment on proportionate basis, which is known as pro-rata allotment of shares. For example, the company may allot 1500 shares to an applicant who applied for 2000 shares.

Pro – rata allotment is that allotment of shares when applications may be allotted in less number of shares than they have applied for.

The bank account will be debited when share first call money is received.

i. Disagree

ii. Agree

iii. Agree

iv. Agree

v. Agree

This statement is False.

Directors can proceed for allotment of shares only after receiving the minimum subscription amount of the issued amount by cheque or other instrument complying with all legal requirements.

Shares are said to be allotted on a pro-rata basis when the applications are received for more shares than the number of shares issued and shares are allotted in the proportion to the number of shares applied for.

i. instalments

ii. forfeits

iii. Capital Reserve

iv. redeemed

v. Equity

This statement is False.

Sweat shares are issued by a company to its directors or employees at a discount or for consideration other than cash. Sweat shares are not issued to the public.

i. Disagree

ii. Disagree

iii. Agree

iv. Disagree

v. Agree

When shares are forfeited, share capital account is debited. 

Explanation: When the shares are forfeited, share capital account is debited, since the money received on the shares being forfeited is to be cancelled. When money is received on the shares, share capital account is credited. Therefore, on forfeiture, share capital account is debited.

Non-Convertible debentures

Explanation: Debentures that do not carry the option/right to be converted into equity shares after the specified period of time are known as non-convertible debentures.

The issue of debenture at its face value is called the issue at par.

Explanation: When debentures are issued at their face value, it is known as ‘issue at par’. In this case, issue price is equal to face value.

The debentures which are converted into shares is called converted debentures.

Explanation: The debentures that are issued with an option of being converted into equity shares or preference shares after the expiry of a certain specified period are known as convertible debentures.

True

Explanation: Debentures are debt instruments issued under the common seal of a company to its debenture holders. They are regarded as the creditors of the company as against the owners who are the ‘equity shareholders’. Capital financed through debentures is known as debt capital or creditors’ share capital of the company.

The issue of debentures less than the face value is called at discount.

Explanation: When debentures are issued at a price below their face value, it is known as ‘issue of debentures at discount’. Such discount is debited to Discount on Issue of Debentures Account.

Registered debentures which are recorded in register of company.

Explanation: Those debentures for which the names and addresses of the debenture holders are recorded in a company’s register are known as registered debentures. Such debentures are not transferable by mere delivery.

Debenture is acknowledgment of debt under common seal of company.

Explanation: Debentures are written acknowledgement of debt issued under the common seal of a company with fixed rate of interest to the debenture holders.

The issue of debentures more than face value is called at premium.

Explanation: When debentures are issued at a price more than their face value, it is known as ‘issue of debentures at a premium’. Such a premium is credited to the Securities Premium Account.

True

Explanation: Unregistered debentures are also known as naked or bearer debentures. Such debentures are issued without any security, i.e. they do not have a charge on the assets of a company.