CA Inter P2 · Chapter 4
Share Capital and Debentures MCQs with Answers
11 multiple-choice questions on Share Capital and Debentures for CA Inter P2 Corporate and Other Laws. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under section 43, the share capital of a company limited by shares can be of which kinds?
- A) Authorised, issued and reserve share capital
- B) Equity share capital (with voting rights or with differential rights) and preference share capital
- C) Equity share capital only
- D) Equity share capital, preference share capital and deferred share capital
Show answer & explanation
Answer: B) Equity share capital (with voting rights or with differential rights) and preference share capital
Section 43 provides for two kinds of share capital: equity share capital and preference share capital. Equity share capital may carry voting rights or differential rights as to dividend, voting or otherwise, in accordance with the rules.
Question 2
Under section 47(2), preference shareholders of a class become entitled to vote on every resolution placed before the company when the dividend on that class has remained unpaid for a period of:
- A) Three years or more
- B) Five years or more
- C) One year or more
- D) Two years or more
Show answer & explanation
Answer: D) Two years or more
Normally, under section 47(2), preference shareholders vote only on resolutions that directly affect their rights, such as winding up or the repayment or reduction of capital. If dividend on a class of preference shares has not been paid for two years or more, that class may vote on all resolutions.
Question 3
The rights of a class of shareholders are varied under section 48 with the written consent of the holders of 80% of the issued shares of that class. Holders of 12% of that class did not consent. Within what time and to whom can they seek a remedy?
- A) None, because the variation was approved by holders of more than three-fourths of the issued shares of that class
- B) They may apply to the Tribunal within twenty-one days after the consent was given to have the variation cancelled, as they hold not less than 10% of the issued shares of that class
- C) They may apply to the Central Government within thirty days, since only holders of 25% of the class can approach the Tribunal
- D) They may apply to the Tribunal within ninety days after the consent was given, as they hold not less than 10% of the issued shares of that class
Show answer & explanation
Answer: B) They may apply to the Tribunal within twenty-one days after the consent was given to have the variation cancelled, as they hold not less than 10% of the issued shares of that class
Section 48(1) allows variation of class rights with the written consent of holders of not less than three-fourths of the issued shares of that class, or by a special resolution passed at a separate class meeting. Under section 48(2), holders of not less than ten per cent of the issued shares of the class who did not consent may apply to the Tribunal to have the variation cancelled. The application must be made within twenty-one days after the date on which the consent was given or the resolution was passed, not ninety days. Once an application is made, the variation has effect only if and when the Tribunal confirms it.
Question 4
Which of the following is NOT a permitted use of the securities premium account under section 52(2)?
- A) Payment of dividend to equity shareholders
- B) Writing off preliminary expenses of the company
- C) Providing for the premium payable on redemption of debentures
- D) Issuing unissued shares to members as fully paid bonus shares
Show answer & explanation
Answer: A) Payment of dividend to equity shareholders
Section 52(2) permits the securities premium account to be used for fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on the issue of shares or debentures, the premium payable on redemption of preference shares or debentures, and buy-back under section 68. It is treated like paid-up share capital, so it cannot be used to pay dividend.
Question 5
Under section 53, any share issued by a company at a discount is void. The only exceptions are sweat equity shares under section 54 and:
- A) Shares issued to promoters in a rights issue
- B) Shares issued to the public in a fresh issue below par to attract investors
- C) Shares issued to creditors on conversion of debt under a statutory restructuring scheme or arrangement under RBI guidelines
- D) Bonus shares issued out of free reserves
Show answer & explanation
Answer: C) Shares issued to creditors on conversion of debt under a statutory restructuring scheme or arrangement under RBI guidelines
Section 53(1) prohibits issuing shares at a discount and section 53(2) makes such shares void, except sweat equity shares under section 54. Section 53(2A) further permits a company to issue shares at a discount to its creditors when debt is converted into shares under a statutory resolution plan or a debt restructuring scheme under RBI guidelines.
Question 6
Delta Ltd redeems fully paid preference shares of nominal value ₹8,00,000 at par. It uses ₹3,00,000 raised from a fresh issue of equity shares at par made for the purpose, and pays the rest out of profits available for dividend. What amount must be transferred to the Capital Redemption Reserve under section 55?
- A) ₹8,00,000
- B) ₹5,00,000
- C) ₹11,00,000
- D) ₹3,00,000
Show answer & explanation
Answer: B) ₹5,00,000
Under section 55(2), when preference shares are redeemed out of profits, a sum equal to the nominal amount of the shares redeemed out of profits must be transferred to the Capital Redemption Reserve. Shares redeemed from a fresh issue need no transfer. Nominal value redeemed out of profits = ₹8,00,000 - ₹3,00,000 = ₹5,00,000.
Question 7
Under section 55, a company limited by shares cannot issue preference shares that are:
- A) Cumulative
- B) Convertible into equity shares
- C) Participating
- D) Irredeemable
Show answer & explanation
Answer: D) Irredeemable
Section 55(1) states that no company limited by shares shall issue any preference shares that are irredeemable. Preference shares must generally be redeemed within twenty years from the date of issue. A longer period is allowed for prescribed infrastructure projects, subject to annual redemption of a portion at the option of the holders.
Question 8
Under section 62(1)(a), when a public company offers further shares to existing equity shareholders by a rights issue, the offer must be open for a period of:
- A) Exactly twenty-one days from the date of the offer
- B) Not less than thirty days and not exceeding sixty days
- C) Not less than fifteen days (or such lesser number of days as may be prescribed) and not exceeding thirty days from the date of the offer
- D) Not less than seven days and not exceeding fifteen days
Show answer & explanation
Answer: C) Not less than fifteen days (or such lesser number of days as may be prescribed) and not exceeding thirty days from the date of the offer
Section 62(1)(a)(i) requires the offer to be made by notice specifying the number of shares offered. It must allow a period of not less than fifteen days, or such lesser number of days as may be prescribed, and not exceeding thirty days from the date of the offer, after which an offer not accepted is deemed declined. Exactly twenty-one days, thirty to sixty days and seven to fifteen days are not the statutory window.
Question 9
Orbit Ltd has: free reserves ₹40 lakh, securities premium ₹15 lakh, capital redemption reserve ₹10 lakh and revaluation reserve ₹25 lakh. What is the maximum amount it can capitalise for fully paid bonus shares under section 63?
- A) ₹55 lakh
- B) ₹90 lakh
- C) ₹40 lakh
- D) ₹65 lakh
Show answer & explanation
Answer: D) ₹65 lakh
Section 63(1) permits bonus shares to be issued only out of free reserves, the securities premium account and the capital redemption reserve account. The proviso to section 63(1) bars capitalising reserves created by revaluation of assets. Maximum = 40 + 15 + 10 = ₹65 lakh.
Question 10
Crest Ltd has paid-up equity share capital of ₹40 crore, a general reserve (free reserve) of ₹25 crore and a securities premium account of ₹15 crore. What is the maximum buy-back the Board can approve under section 68 without a special resolution of members?
- A) ₹20 crore
- B) ₹4 crore
- C) ₹6.5 crore
- D) ₹8 crore
Show answer & explanation
Answer: D) ₹8 crore
Under the proviso to section 68(2)(b), the Board may authorise a buy-back of up to ten per cent of the total paid-up equity capital and free reserves. Under the Explanation to section 68, free reserves include the securities premium account. Base = 40 + 25 + 15 = ₹80 crore, so the Board limit = 10% x 80 = ₹8 crore. A larger buy-back, up to 25%, needs a special resolution.
Question 11
Under section 56(4), unless prohibited by any law or court order, every company must deliver the certificates in respect of debentures allotted within:
- A) Six months from the date of allotment
- B) Two months from the date of allotment
- C) Thirty days from the date of allotment
- D) One month from the date of allotment
Show answer & explanation
Answer: A) Six months from the date of allotment
Section 56(4) sets the time limits for delivering certificates. For subscribers to the memorandum it is two months from incorporation. For any allotment of shares it is two months from allotment. For a transfer or transmission it is one month from receipt of the instrument of transfer or intimation. For debentures it is six months from allotment.