CA > Inter > Paper 2 – Skim Notes

Chapter 4 : Share Capital and Debentures

Overview

  • Understand the different types of share capital.
  • Requirements for issuing share certificates and related rights.
  • Mechanics of calls on unpaid shares and redemption procedures.
  • Rules surrounding share premium amounts and discounts.
  • In-depth knowledge of sweat equity share issuance and preferences.
  • Processes for transferring, transmitting securities, and appeal mechanisms.
  • Procedures for altering share capital and issuing bonus shares.

Key Topics

Types of Share Capital

  • Two main types: Equity and Preference shares.
  • Equity share capital can be divided further into shares with equal or differential voting rights.
  • Preference shares lead to preferential treatment in dividend payment and capital repayment.
  • Example: Ind-swift Pharma offers fixed dividends for preference shares; Panacea Biotec offers them on a fixed rate basis.
  • Regulations around conversion and rights of various types of shares.

Deep Dive

  • The limitations on preference shares and their expected rights during liquidation.
  • Historical evolvement of the equity versus preference concept in corporate finance.
  • Detailed analysis of shareholder rights in courts, reflected through landmark judicial cases.

Share Certificates and Rights

  • Certification serves as prima facie evidence of ownership.
  • Modes of certification: physical signatures, common seals.
  • Renewed or duplicate certificates can be issued under specific conditions.
  • Mandatory issuance timelines enforce compliance in transferring shares.
  • Significant penalty provisions for issuing duplicate shares with the intent to defraud.

Deep Dive

  • Securities in dematerialized forms are transforming issuance protocols, evidenced by procedural changes.

Calls on Unpaid Shares

  • Calls must apply uniformly across all shares of the same class.
  • Restrictions on calling shares after certain payment delays are enforced.
  • Provisions for calling in advance if permitted by articles with no voting right enhancements.
  • Rights based on paid-up status of shares dictate dividend distribution.
  • Regulatory limits on unpaid share acquisition during bid phases.

Deep Dive

  • The implications of partial payments on shareholder voting rights.
  • Analysis of legal frameworks governing share liability on shareholder failures.

Redeemable Preference Shares

  • Only redeemable shares can be issued; irredeemable shares are banned.
  • Conditions for issuance are strictly enforced according to articles of incorporation.
  • Redemption paid from profits leads to mandatory creation of Capital Redemption Reserve (CRR).
  • Debenture provisions may dictate timing around redemption according to legislation.
  • Regulations surrounding rebates and return policies upon preference share transactions.

Deep Dive

  • The distinction between Nidhi companies and other limited entities concerning track liabilities.
  • The critical importance of CRR in maintaining healthy capital structures.

Securities Issues and Discounts

  • Securities should not be issued at a discount under normal conditions.
  • Exceptions exist for specific equity classes and sweat equity shares.
  • The application of securities premium in various corporate finance scenarios.
  • Redirecting unutilized premium into permissible allocation channels maintains compliance.
  • Counsel for shareholders determining shareholder equity distributions against company reserves.

Deep Dive

  • Historical rationale and implications of prohibiting discounts on share issues in business evolution.
  • Market trends affecting equity versus preference issuance paradigms over recent years.

Debentures and Redemption Policies

  • Debentures include unsecured notes issued by companies for substantial borrowing.
  • Schedule regulations govern a major aspect of the debenture issuance process as per company law.
  • Appointment of debenture trustees is critical in safeguarding investor interests.
  • Mechanisms for redeeming debentures must align with terms of liability outlined at issuance.
  • Conditions for classifying and securing debentures boost corporate transparency.

Deep Dive

  • Role of the debenture trustee as a critical legal advocate for shareholders.
  • Analysis of financial statement impacts from debenture issues versus stock shares.

Transfer and Transmission of Shares

  • The process for transferring shares requires compliance with the regulations outlined in company contracts.
  • Conditions may restrict share rights during the transfer process legally.
  • Restrictions on share transfer by private companies influence shareholder rights.
  • Matured securities have different liabilities than new issues in transfer.
  • Legal ramifications of share ownership transfer, especially in estate and probate contexts.

Deep Dive

  • Implications of fraudulent transfers and how courts resolve disputes surrounding them.
  • The relationship between company articles and shareholder rights during transmission events.

Shareholders Rights and Voting Mechanisms

  • Equity holders typically enjoy voting rights in proportion to their holding.
  • Preference shareholders gain rights regarding special resolutions impacting their investments.
  • The concept of voting rights is crucial for governance in corporate structures.
  • Procedural mechanisms exist for protecting minority shareholder interests against majority actions.
  • Court cases inform boundaries around rights enforcement concerning dividends and company actions.

Deep Dive

  • The political dynamics of voting rights within corporate governance and historical transformations.
  • Nuances of shareholder lawsuits protecting voting rights over time, reflecting actual market dynamics.

Regulatory Compliance and Sanctions

  • Stipulated guidelines mandate shareholder transparency across capital activities.
  • Penalties exist to deter non-compliance with declared guidelines.
  • Mechanisms enable shareholders to appeal against unlawful restrictions placed by companies.
  • Managing compliance imposes liability on corporate directors as well as the company itself.
  • Significant rulings direct company behavior concerning shareholder treatment during governance issues.

Deep Dive

  • The interplay of national policies on corporate governance norms and how it shapes compliance landscapes.
  • Emerging global trends on securities standards affecting India’s corporate structure.

Summary

The chapter provides comprehensive coverage of share capital and debentures under the Companies Act, 2013. By examining crucial elements such as types of share capital, share certificates, calls on unpaid shares, redeemable preferences, and procedural requirements for debentures, students gain essential insights into corporate finance management. Each section provides key regulations aiming to ensure fairness, transparency, and governance within corporate structures while also outlining the penalties for non-compliance, ensuring a thorough understanding of legal liability in corporate settings.