Study the following case/situation and express your opinion.
1. Eva Ltd. Company’s capital structure is made up of 1,00,000 Equity shares having face value of ` 10 each. The company has offered to the public 40,000 Equity shares and out of this, the public has subscribed for 30,000 Equity shares. State the following in `.
a) Authorised capital
b) Subscribed capital
c) Issued capital
(a) In the above case, Eva Ltd. Company has 1,00,000 equity shares having face value of ₹10 each. Therefore, the Authorised capital is Rs. 10,00,000 (1,00,000 equity shares @ ₹ 10 per share)
(b) In the above case, the public has subscribed for 30,000 equity shares. Therefore, the subscribed capital is Rs 3,00,000 (30,000 equity shares @ ₹ 10 per share)
(c) In the above case, the company has offered to the public 40,000 equity shares. Therefore, the issued capital is ₹ 4,00,000 (40000 equity shares @ 10 per share)
2. TRI Ltd. Company is newly incorporated public company and wants to raise capital by selling Equity shares to the public. The Board of Directors are considering various options for this. Advise the Board on the following matters :
a) What should the company offer – IPO or FPO ?
b) Can the company offer Bonus Shares to raise its capital ?
c) Can the company enter into Underwriting Agreement ?
(a) In the above case, TRI Ltd. Company is newly incorporated public company and wants to raise capital by selling equity shares to the public. Therefore, the company should offer IPO (Initial Public Offer).
(b) No. The company cannot offer Bonus Shares to raise its capital. This is because Bonus Shares are given to its existing equity shareholders and it is given out of accumulated distributable profits or reserves. Whereas, TRI is newly incorporated company, so it will not have sufficient profit to give bonus shares.
(c) Yes. The company can enter into an Underwriting Agreement with underwriters by paying them a commission. The underwriters assure the company to take up the unsold shares so that the company is able to raise its minimum subscription.
3. Silver Ltd. Company has recently come out with its public offer through FPO. Their issue was over subscribed. The Board of Directors now wants to start the allotment process. Please advise the Board on :
a) Should the company set up allotment committee ?
b) How should the company inform the applicants to whom the company is alloting shares ?
c) Within what period should the company issue share certificate ?
(a) In the above case, the board of directors now wants to start the allotment process. Therefore, the company must set up an allotment committee, Allotment committee will decide the basis of allotment and submit a report to the board of directors.
(b) At the board meeting, a resolution is passed to allot shares. After passing the resolution, the secretary has to issue a Letter of Allotment to those applicants whom the company is allotting shares
(c) The company should issue a share certificate within two months from date of allotment.
4. Red Tubes Ltd. has made a demand on its shareholders to pay the balance unpaid amount of ` 20/- per share (having a face value of ` 100) held by them. The company has sent letters asking the shareholders to pay the money to its Bankers within the specified time.
a) Are the shareholders liable to pay Rs 20 for the shares held by them ?
b) Name the letter sent by the company to its shareholders asking them to pay Rs 20/-
c) What happens if a shareholder fails to pay the money within the specified time ?
(a) Yes. The shareholders are liable to pay ₹ 20 for the shares held by them. This is because it is the responsibility of every shareholder to pay the call money as demanded by the company.
(b) The company has to send the call letter to shareholders for the payment of call money. This letter is sent by ordinary post.
(c) If a shareholder fails to pay the money within the specified time, then the company sends a warning letter and after that, the company can forfeit (cancel) the shares of the shareholders.
5. X owns 100 shares while Y owns 500 shares of Red Tubes Ltd. The company has asked all its shareholders to pay the balance unpaid amount of ` 20. X pays the full money demanded by the company. Y, who is in a bad financial position is unable to pay any money.
a) Can the company forfeit the shares of Y ?
b) Can the company forfeit the shares of X ?
c) Can X transfer his shares ?
(a) In the above case, Y owns 500 shares and unable to pay any money due to a bad financial position. Therefore, the company can forfeit the shares of Y.
(b) In the above case, X owns 100 shares and pays the full money demanded by the company. Therefore, the company cannot forfeit the shares of X.
(c) Yes. X can transfer his shares. For this, X has to fill-up the form for renunciation and have to submit it with the original copy of the Letter of Allotment to the company. After the approval of the Board, the secretary enters the name of new allottees in the application and in the allotment list.