Justify the following statement
1. Company has to fulfill certain provisions while making Right Issue.
Ans: The following provisions company has to fulfill while making Rights Issue:
Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
A company has to send a Letter of an offer to the existing shareholders at the time of issuing Rights shares.
The letter of offer shall mention:
-The number of shares offered.
-The period of offer i.e. offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of the offer.
-The right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.If the shareholder does not respond to the Rights Issue offer within a stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
The company has to obtain a minimum subscription i.e. 90% of the issue.
2. To Issue Bonus Shares, a company has to fulfill certain provisions.
Ans: The following provisions company has to fulfill to issue Bonus Shares:
A company can issue Bonus Shares only out of:
– Free reserves or
– Securities Premium Account or
– Capital Redemption Reserve Account
A company cannot issue Bonus Shares only out of reserves created by the Revaluation of Assets. The company also cannot issue Bonus Shares instead of paying a dividend. Once the announcement for Bonus Shares is made by the Board of Directors then it cannot be withdrawn. Bonus shares are fully paid up shares. Shareholders cannot give away their Bonus shares to another person. There is no minimum subscription to be collected. Thus, it is rightly justified that, to issue bonus shares, a company has to fulfill certain provisions.
3. ESOS is offered by a company to its permanent employees, Directors and Officers.
Ans: Employee Stock Option Scheme (ESOS) is a scheme, through which a company encourages employee participation in the business of a company. Under this scheme, the company offers certain shares from the new issue to the whole time directors, officers, or employees of the company. The company offers the shares at a predetermined price which is usually less than the price offered to the general public. ESOS must be approved by passing a special resolution in the general meeting. Thus, it is rightly justified that, ESOS is offered by a company to its permanent employees, Directors, and Officers.
4. Company has to fulfill general principles/rules for allotment of shares.
Ans: The following are the general principles/rules for allotment of shares
Communication: The decision regarding allotment must be communicated to the applicants. It means the company should inform the investors in writing and then share the applicant and the company enters into a contract.
Absolute and unconditional: The allotment must be absolute and unconditional, i.e, it must be made on the same terms as stated in the application, No change in the terms of allotment or new conditions can be added at the time of allotment.
Proper authority: The allotment should be made by proper authority, i.e, Board of Directors of the company, or authorized committee on behalf of the Board of Directors. An allotment made without proper authority will be invalid.
Allotment against applications only: A company can allot shares only if it has received a written application for shares from the applicant. Thus, no valid allotment can be made on oral requests. It must be against written application only.
Reasonable time: – The allotment must be made within a reasonable time. Otherwise, the applicant is not bound to accept it, i.e, the applicant can reject it.
– As per the Act, allotment shall be done within 60 days of receipt of application money. The allotment can be made from the fifth day from date of the issue of prospectus.
Thus, it is rightly justified that, the company has to fulfill general principles/rules for allotment of shares.
5. A company can issue duplicate share certificate.
Ans: A company can issue a duplicate share certificate if the Original share certificate has been defaced,
– mutilated or torn and is surrendered to the company.
– It has been proved by the holder that the original share certificate is lost or destroyed.
In case of loss of share certificate, the company puts up a notice in the newspapers to announce the loss of the share certificate and asks the finder, if any, to return it to the company.
If the company does not get any response from the public, within the specified time, then the company can issue a duplicate share certificate.
A duplicate share certificate should be issued within three months from the date of application. The company issues it only to registered shareholders. Thus, it is rightly justified that, a company can issue a duplicate share certificate if the original certificate is lost, destroyed, or torn.
6. Board of Directors have the authority to forfeit shares.
Ans: Forfeiture of shares is a process where the company forfeit the shares of a member or shareholder who fails to pay the call on shares or instalments of the issue price of his shares within a certain period of time after they fall due.
In other words, when the shareholder fails to pay the full amount of share which he agreed to pay in instalments the company can cancel his shares.
If a shareholder fails to pay calls on shares within a certain period, the Board of Directors, if authorised by the Articles of Association, can forfeit i.e. take away the ownership of a member.
The company will give 14 days’ notice after 14 days if the shareholder does not pay the company will forfeit his shares and strike his name from the register of shareholders. Thus, it is rightly justified that, Board of Directors has the authority to forfeit shares.
7. A member of a Public company can transfer shares.
Ans: Transfer of shares means the transfer of ownership of shares from one person to another. In other words, a shareholder can transfer the share to another shareholder.
Transfer of shares takes place when the shareholder wants to sell his shares or give as a gift to another person.
Shares can only be transferred by following the procedure laid down in the Articles of Association. A shareholder can sell either a part of a share or entire shares held by him.
In the case of public companies, shares are freely transferable subject to the provisions of the Articles of Association. Whereas, in the case of Private Company, there are restrictions on the free transfer of shares. Thus, it is rightly justified that, a member of a Public company can transfer shares.
8. The Board of Directors can refuse transfer of shares.
Ans: If a company refuses to register the transfer of shares, it shall send a notice of refusal to the transferor and the transferee or to the person giving intimation of such transfer within thirty days from the date on which the instrument of transfer was delivered to the company.
The notice should contain a valid reason for such refusal. The Board of Directors has the authority to refuse registration of transfer of shares. A member may appeal to the NCLT against the refusal by the Board within a period of thirty days from the date of receipt of the refusal notice.
If no notice is received, the member can appeal within 60 days in case of a Private Company and within 90 days in case of a Public Company.
Thus, it is rightly justified that, the Board of Directors can refuse the transfer of shares.