Class 12 Secretarial Practice Chapter 3: Issue of Shares

Key concepts: Issue of Shares

Classification of share capital

Authorised, issued, subscribed, called-up and paid-up capital are stages of the capital. Each is a part of the one before it; unissued, unsubscribed, uncalled capital and calls in arrears are the leftovers.

Public issue

Shares offered to the public through a prospectus. It can be an IPO (first offer) or an FPO (later offer by a listed company), priced by the fixed price method or by book building.

Rights issue and bonus issue

Rights shares are offered to existing equity holders in proportion to their holding, and must be paid for. Bonus shares are fully paid shares given free out of profits or reserves.

Employee share schemes

ESOS gives employees an option to buy shares later at a set price, ESPS offers discounted shares paid through salary, SARS pays the rise in share value, and sweat equity rewards directors or employees for their contribution.

Private placement and preferential allotment

Securities are offered to a select group of at most 200 persons chosen by the Board, and payment must not be in cash. Preferential allotment offers equity or convertible securities to chosen persons.

Allotment of shares

The Board of Directors gives shares to applicants out of unallotted capital. It must satisfy statutory provisions and general principles, then follow a set procedure ending with the share certificate.

Calls, forfeiture and surrender

A call is a demand for unpaid money on partly paid shares. Non-payment can lead to forfeiture, taking the shares away, while surrender is the member's voluntary return of partly paid shares.

Transfer and transmission

Transfer is a voluntary handing over of shares by a transferor to a transferee. Transmission happens by operation of law on the death, insolvency or insanity of a member, with no consideration.

Quick revision: important points

• SEBI: minimum application money 25% of nominal value; minimum subscription 90% of the issue.
• Allotment within 60 days of receiving application money; return of allotment filed within 30 days.
• Share certificate: 2 months from allotment; 1 month from transfer or transmission request.
• Call not more than 25% of nominal value; gap of one month between calls; 14 days notice.
• Only partly paid shares can be forfeited or surrendered; stamp duty on transfer is 0.25%.
• Lock-in: ESOS 1 year, ESPS 1 year, sweat equity 3 years, SARS none; private placement max 200 persons.

Practice MCQs with answers

1. Which capital is the maximum capital a company can raise by issuing shares, as stated in the Memorandum of Association?

   1. Paid-up capital
   2. Authorised capital
   3. Called-up capital
   4. Issued capital
   Show answer

   Answer: B. Authorised capital
   Authorised (nominal or registered) capital is the ceiling stated in the capital clause of the Memorandum of Association.

2. A company has an authorised capital of 1,00,000 equity shares of Rs 10 each. It offers 40,000 shares and the public takes up 30,000. What is the subscribed capital?

   1. Rs 4,00,000
   2. Rs 1,00,000
   3. Rs 3,00,000
   4. Rs 10,00,000
   Show answer

   Answer: C. Rs 3,00,000
   Subscribed capital = shares taken up x face value = 30,000 x Rs 10 = Rs 3,00,000.

3. The part of uncalled capital that a company decides to demand only when it is wound up is called

   1. Reserve capital
   2. Paid-up capital
   3. Issued capital
   4. Calls in arrears
   Show answer

   Answer: A. Reserve capital
   Reserve capital is kept aside from uncalled capital and is collected only at the time of winding up.

4. Which of the following describes calls in arrears?

   1. Amount not yet demanded from shareholders
   2. Capital kept for winding up
   3. Issued capital that the public did not take up
   4. Amount called by the company but not paid by shareholders
   Show answer

   Answer: D. Amount called by the company but not paid by shareholders
   When shareholders fail to pay an amount that the company has called, the unpaid amount is calls in arrears.

5. The face value of a share is Rs 10 and the company has called Rs 5 per share on 30,000 shares. Calls on 10,000 shares are unpaid. What is the paid-up capital?

   1. Rs 1,50,000
   2. Rs 1,00,000
   3. Rs 50,000
   4. Rs 3,00,000
   Show answer

   Answer: B. Rs 1,00,000
   Shares on which calls are paid = 30,000 - 10,000 = 20,000. Paid-up capital = 20,000 x Rs 5 = Rs 1,00,000.

All Class 12 Secretarial Practice chapters

• Chapter 1: Introduction to Corporate Finance
• Chapter 2: Sources of Corporate Finance
• Chapter 3: Issue of Shares
• Chapter 4: Issue of Debentures
• Chapter 5: Deposits
• Chapter 6: Correspondence with Members
• Chapter 7: Correspondence with Debentureholders
• Chapter 8: Correspondence with Depositors
• Chapter 9: Depository System
• Chapter 10: Dividend and Interest
• Chapter 11: Financial Market
• Chapter 12: Stock Exchange

Class 12 Secretarial Practice notes: all chapters