Samacheer Kalvi 12th Commerce Notes Chapter 26 Companies Act, 2013

Samacheer Kalvi 12th Commerce Notes Chapter 26 Companies Act, 2013

→ The concept of “company” or corporation in business is not new, but was dealt with, in 4th century BC itself during Arthashastra days. The earliest business associations in England were the merchant guilds. Some of the merchant Associations or guilds who have regulated the company.

→ A royal charter established the East India company in the year 1600.

→ The Joint Stock Companies Act was passed in India by introducing the concept of limited liability in the year 1857.

→ In 1913 the Indian companies Act of 1913 was passed. The Act introduce the institution of private companies in the corporate sector.

→ Body corporate means a corporate entity which has a legal existence. According to section 2 (11) “Body Corporate” or corporation includes private company, public company and small company, limited liability partnership and foreign company incorporated outside India but does not include a co-operative society.

→ Promotion stage begins when the idea to form a company comes in the mind of a person. The person who envisage the idea is called a promoter. The memorandum of association is the charter of a company. It is a document, which amongst other things, defines the area within which the company can operate. It contain the name clause, liability clause and subscription clause.

→ A business person invest in the business and in case of company raise the capital by issue of shares. They use this money to meet its requirements by way of acquiring business premises and stock in Trade.

→ A share certificate is an instrument in writing that is a legal proof of the ownership of the number of shares stated in it.

→ A share warrant is a negotiable instrument, issued by the public limited company only against fully paid up shares.

→ When a company needs funds for extension and development purpose without increase its share capital, it can borrow from the general public by issuing certificates for a fixed period of time and at fixed rate of interest. Such a loan certificate is called debenture.

Samacheer Kalvi 12th Commerce Notes

TN Board 12th Commerce Important Questions Chapter 26 Companies Act, 2013

TN State Board 12th Commerce Important Questions Chapter 26 Companies Act, 2013

Question 1.
Who is called as Promoters?
Answer:
The person who envisage the idea is called a promoter section 2 (69) of the companies Act 2013 defines the term promoter as follows who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92.

Question 2.
What is Shares?
Answer:
The term share is viewed by a layman as a fraction or portion of total capital of the company which have equal denomination. In simple, the total capital of the company is shared by many person and each share is having equal value.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 3.
What do you mean by Equity Share?
Answer:
Those shares which are not called as preference share are known as equity share or the share of a company which do not have any preferential rights with regard to dividend and repayment of share capital at the time of liquidation of a company. Share are part of the capital of a company.

Question 4.
What do you understand by Preference Share?
Answer:
Section 42 of the companies Act, 2013 the term “Preference shares” mean that part of the share capital the holders of which have preferential right over payment of dividend (fixed amount or rate) and repayment of share capital in the event of winding up of the company.

Question 5.
What is Sweat Equity Shares?
Answer:
Sweat equity shares means issue of shares to employees or directors at a lower price for cash or other than cash, in lieu of providing know how or making available rights in the nature of intellectual property rights or any value additions.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 6.
What is Bonus Shares?
Answer:
Bonus shares, means to utilize the company’s reserves and surpluses, issue of shares to existing share holders without taking any consideration is known as bonus share.

Question 7.
What is Right Shares?
Answer:
Right shares are the shares which are issued by the company within the aim of increasing the subscribed share capital of the company by further issue if it is authorized by its articles.
The right shares are primarily issued to the existing equity share holders through a letter of an issue, on pro rata basis.

Question 8.
What is Private placement?
Answer:
Private placement means offer of securities or invitation to subscribe to securities to select group of persons through private placement offer letter. The number of subscribers under private placement should not exceed 50 members or such numbers prescribed.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 9.
Define Share Warrant.
Answer:
A share warrant is a negotiable instrument issued by the public limited company only against fully paid up shares. It is also termed as a document of title because the holder of the share warrant is entitled to the number of shares mentioned in it.

Question 10.
What is Debentures?
Answer:
When a company needs funds for extension and extension and development purpose without increasing its share capital, it can borrow from the general public by issuing certificates for a fixed period of time and at a fixed rate of interest. Such a loan certificate is called a benture.

Question 11.
Distinguish between shares and stocks.
Answer:

Shares

 Stock

Share are part of the capital of a company.  A company can convert it share into stock.
A share is the smallest unit into which the company’s capital is divided representing the ownership of share holders.  The denomination of stock differs.
Share can be partly or fully paid up.  Stock can only be fully paid up shares.
Shares are of equal denomination.  When share are transformed into stock

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 12.
What do you understand by Issue of Securities at Premium?
Answer:

  1. The amount of share premium has to be transferred to an account called the “Securities premium account”. This account is capital in nature and can only be utilized for the purposes specified by the Act (under section 78), Issue of fully paid bonus shares to members of the company.
  2. Securities premium Account cannot be treated as a revenue reserve for distributing dividends. It can only be used for the above mentioned purposes and also for buying back of securities (section 77A). It must be noted that security premium is not available for the distribution of dividend.

Question 13.
What is issue of shares at discount? What conditions should be fulfilled?
Answer:

  1. When shares are issued at a price above the face value or nominal value they are said to be issued at a premium.
  2. When the shares are issued at a price below the face value they are said to be issued at a discount.
  3. Issue of fully paid bonus shares to members of the company.
    (a) To write preliminary expenses.
    (b) To write off the expenses of issue or commission paid or discount allowed on issue of shares or debentures of the company.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 14.
State condition stipulated for capital subscription at the time of promotion.
Answer:

  1. The fulfilling formalities to raise necessary capital.
  2. Adhering to SEBI guidelines in this regard.
  3. Observing guidelines for disclosure and investor protection issued by SEBI.
  4. Issuing prospectus
  5. Fulfilling the condition for valid allotment by director.
  6. Ensuring collection of minimum subscription.

Question 15.
Explain different Kinds of Preference shares.
Answer:
There are eight types of preference shares. Incase of dissolution of the company any of the eight types would be paid out before other types of equity.
(i) Cumulative preference shares:
As the word indicates, all dividends are carried forward until specified and paid out only at the end of the specific period.

(ii) Non-cumulative preference shares:
Dividends are paid out of profits for every year. There are no arrears carried over a time period to be paid at the end of term.

(iii) Non redeemable preference shares:
Such shares cannot be redeemed during the life time of the company, but can only be obtained at the time of winding up (liquidation) of assets.

(iv) Redeemable preference shares:
Such preference shares can be claimed after a fixed period or after giving due notice.

(v) Convertible preference shares:
The shares can be converted into equity shares after a time period or as per the conditions laid down in the terms.

(vi) Non-convertible preference shares:
Non-convertible preference shares cannot be at anytime converted into equity shares.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 16.
Write the difference between Debentures and Shares.
Answer:

Debentures

 Shares

Debentures constitute a loan.  Shares are part of the capital of a company
Middle and lower level  Top level
Debenture holder gets fixed rate of interest which carries a priorities over dividend.  Shareholders gets dividends with a varying rate.
Debentures generally have a charge on the assets of the company.  Shares do not carry any such charge.
Debentures can be issued at a discount without restrictions.  Shares cannot be issued at a discount.
The rate of interest is fixed in the case of debentures.  Whereas on equity shares, the dividend varies from year to year depending upon the profit of the company and the Board of directors decision to declare dividends or not.
Debenture holders do not have any voting right.  Share holders enjoy voting right.
Interest on debenture is payable even if there are no profits i.e., even out of capital.  Dividend can be paid to shareholders only out of the profits of the company and not otherwise.
Interest paid on debenture is a business expenditure and allowable deduction from profits.  Dividend is not allowable deduction as business expenditure.
Return of allotment is not required for allotment of debentures.  Return of allotment in e Form No.2 is to be filed for allotment of shares.

Question 17.
Brief different stages in Formation of a Company.
Answer:
Formation of a company has been divided into four stages,
(i) Promotion
(ii) Registration
(iii) Capital Subscription
(iv) Commencement of business
Out of the four stages the first two stages promotion and registrations are necessary for both public and private companies.
(a) A private company can start operating its business immediately after the registration, but a public company has to pass through two more stages capital subscription and commencement of business.
(b) A public company can raise the funds from the public by issuing shares. After following all the legal provision of public issue, which are specified in the Company’s Act, a public company can start operating of its business.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 18.
What are the various kinds of Debentures?
Answer:
Debentures are generally classified into different categories on the basis of,
(i) Convertibility of the instrument
(ii) Security of the instrument
(iii) Redemption ability
(iv) Registration of Instrument

(i) On the basis of convertibility:
(a) Non-convertible debentures:
These instruments retain the debt character and cannot be converted in to equity shares

(b) Partly convertible debentures:
A part of these instruments are converted into equity shares in the future at notice of the issuer.

(c) Fully convertible debentures:
These are fully convertible into equity shares at the issuer’s notice. The ratio of conversion is decided by the issuer.

(d) Optional convertible debentures:
The investor has the option to either convert these debentures into shares at a price decided by the issuer agreed upon at the time of issue.

(ii) On the basis of security debentures:
(a) Secured debentures:
These instruments are secured by a charge on the fixed assets of the issuer company.

(b) Unsecured debentures:
These instruments are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount the investor has to be included as unsecured creditors of the company.

(c) Redeemable debentures:
It refers to debentures which are issued with a condition that the debentures will be redeemable at a fixed date or upon demand.

(d) Perpetual or irredeemable debentures:
A debenture in which no specific time is specified by the companies to pay back the money is called irredeemable debenture on the basis of registration.

(e) A registered debentures:
Registered debentures are issued in the name of a particular person whose name appears on the debenture certificate and who is registered by the company as holder on the register of debenture holders.

(f) Bearer debentures:
Bearer debentures are issued to bearer, and are negotiable instruments and so transferable by mere delivery like share warrants.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 19.
What formalities need to be fulfilled for a companies having share capital to commence business?
Answer:
As per section 11 of the Act a company having share capital should file with registrar declaration stating that
(i) Every subscriber to the memorandum has paid the value of shares agreed to be taken by him.
(ii) Paid up capital is not less than ? 5 lakhs in the case of public limited company and ? 1 lakh in the case of private limited company.
(iii) It has filed the Registrar the verification of the registered office.
These restriction in section 11 are applicable to companies having share capital. It can commence business only after fulfilling all the formalities mentioned above and exercise borrowing powers immediately after incorporation.

Question 20.
Write the difference between Share Certificate and Share Warrant.
Answer:

Share certificate

 Share warrant

It is a written document prepared by the company under its common seal.  It is an instrument which signifies that the holder of the instrument is entitle to the shares mentioned in it.
Sent to the members it containing the number of shares held by him/ her the amount paid thereon.  It is a bearer document which can be transferred by mere delivery.
Document work as an evidence for the ownership of shares of the shareholder.  Only public limited companies have the right to issue share warrant.

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Choose the correct answer:

Question 1.
The Company will have to issue the notice of situation of Registered Office to the Registrar of Companies within ___________ days from the date of incorporation.
(a) 14 days
(b) 21 days
(c) 30 Days
(d) 60 Days
Answer:
(c) 30 Days

Question 2.
How does a person who envisages the idea to form a company called?
(a) Director
(b) Company Secretary
(c) Registrar
(d) Promoter
Answer:
(d) Promoter

Question 3.
For which type of capital a company pays the prescribed fees at the time of registration?
(a) Subscribed Capital
(b) Authorised Capital
(c) Paid-up Capital
(d) Issued Capital
Answer:
(b) Authorised Capital

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 4.
Which of the following types of shares are issued by a company to raise capital from the existing shareholders?
(a) Equity Shares
(b) Rights Shares
(c) Preference Shares
(d) Bonus Shares
Answer:
(b) Rights Shares

Question 5.
Specify the type of resolution to be passed to choose the location of Registered Office of the company within the town or village or city:
(a) Ordinary
(b) Special
(c) Either Ordinary
(d) Board or Special
Answer:
(d) Board or Special

Question 6.
Who can issue stock?
(a) Public
(b) Private
(c) One Person
(d) Small
Answer:
(a) Public

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 7.
Specify the document which comes under the Negotiable Instrument Act.
(a) Share Certificate
(b) Share
(c) Share Warrant
(d) Stock
Answer:
(c) Share Warrant

Question 8.
The shares which are offered to the existing shareholder at free of cost is known as:
(a) Bonus Share
(b) Equity Share
(c) Right Share
(d) Preference Share
Answer:
(a) Bonus Share

Question 9.
The shares which are offered first to the existing shareholder at reduced price is known as:
(a) Bonus Share
(b) Equity Share
(c) Right Share
(d) Preference Share
Answer:
(c) Right Share

Samacheer Kalvi TN State Board 12th Commerce Notes Chapter 26 Companies Act, 2013

Question 10.
The Companies Act 2013 Prohibits the issue of shares at to the public.
(a) Premium
(b) Par
(c) Discount
(d) Both at par and Premium
Answer:
(c) Discount

TN Board 12th Commerce Important Questions