Companies Act 2013 Text Book Solutions

Dear Class 12 Samacheer Kalvi students, here are the text book solutions for Chapter 26, Companies Act 2013 in Commerce for your reference.

I. Choose the Correct Answers:

II. Very Short Answer Questions:

1. What are the four stages of formation of a company?

Formation of a Company’ has been divided into four stages:

1. Promotion
2.Registration
3. Capital Subscription and
4. Commencement of Business.

2. What is Bonus Shares?

A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus shares. The issue of bonus shares by a company is a common feature. In simple, Bonus share means to utilize the company’s reserves and surpluses, issue of shares to existing shareholders without taking any consideration is known as Bonus Shares. It can be issued by:

(i) Making partly paid up shares as fully paid
(ii) Issuing new shares

3. What is Right Shares?

Right shares are the shares which are issued by the company, with 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 shareholders through a letter of an issue, on pro rata basis.

4. What is Debentures?

When a company needs funds for 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 debenture. Debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt.

III. Short Answer Questions:

1. What do you understand by Issue of Securities at Premium?

When shares are issued at a price above the face or nominal value, they are said to be issued at a premium. For example, a share having the face value of Rs.10 is issued at Rs.12. Here, Rs.2 is the premium. The amount of share premium has to be transferred to an account called the ‘Securities Premium Account’. This account is capital in nature. It can only be utilized for the purposes specified by the Act under Section 78 such as:

(i) To write off preliminary expenses.
(ii) To write off the expenses of issue, or commission paid, or discount allowed, on issue of shares or debentures of the company.
(iii) To provide for the payment of premium on the redemption of any redeemable preference shares or debentures of the company.

The Securities Premium Account cannot be treated as a revenue reserve for distributing dividends. Security premium is not available for distribution of dividend.

2. Explain different kinds of Preference shares. (any 3)

There are eight types of preference shares namely Cumulative Preference shares, Non-cumulative Preference shares, Redeemable Preference shares, Non-Redeemable Preference shares, Convertible Preference shares, Non-convertible Preference shares, Participating Preference shares, and Non-Participating Preference shares.

Cumulative Preference shares: As the word indicates, all dividends are carried forward until specified, and paid out only at the end of the specified period.

Non-cumulative Preference shares: The opposite of cumulative, obviously. 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 the term.

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

IV. Long Answer Questions:

1. Write the differences between Shares and Debentures. (any 5)

2. What are the various kinds of Debentures? (any 5)

Debentures are generally classified into different categories on the basis of:

(1) Convertibility of the Instrument
(i) Non Convertible Debentures
(ii) Partly Convertible Debentures
(iii) Fully convertible Debentures
(iv)Optionally Convertible Debentures

(2) Security of the Instrument
(A) Secured Debentures
(B) Unsecured Debentures

(3) Redemption ability
(A) Redeemable Debentures
(B) Perpetual or Irredeemable Debentures

(4) Registration of Instrument
(A) A Registered Debentures
(B) Bearer debentures

1. On the basis of convertibility, Debentures may be classified into following categories:

(i) Non Convertible Debentures (NCD): These instruments retain the debt character and cannot be converted into equity shares.

(ii) Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

2. On the basis of Security, debentures are classified into:

(i) Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, such fixed assets can be sold to repay the liability to the investors.

(ii) Unsecured Debentures: These instrument 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.

3. On the basis of Redeemability, debentures are classified into:

(i) Redeemable Debentures: It refers to the debentures which are issued with a condition that the debentures will be redeemed at a fixed date or upon demand, or after notice, or under a system of periodical drawings. Debentures are generally redeemable and on redemption these can be reissued or cancelled.