Match List I with List II: Choose the correct answer from the options given below:List I List II (A) Bonus shares (I) Invitation to existing shareholders to purchase additional new shares (B) Demat shares (II) Issue is made to existing members free of charge (C) Right issue (III) Share issues by a company to its employees/directors at a discount for providing know-how (D) Sweat equity share (IV) Shares in electronic form
(A) - (II), (B) - (IV), (C) - (I), (D) - (III)
Understanding Different Types of Shares
This question requires matching various types of shares with their correct definitions. Let's break down each term provided in List I and find its corresponding description in List II.
Analyzing List I and List II
We need to correctly associate each type of share with its specific characteristic or issuance method.
- (A) Bonus shares: These are shares issued by a company to its existing shareholders free of charge. They are typically distributed from the company's reserves and are a way of capitalizing profits. This matches with description (II) "Issue is made to existing members free of charge".
- (B) Demat shares: 'Demat' stands for Dematerialised. These are shares held in electronic form, rather than physical share certificates. Trading in stock markets predominantly involves shares in dematerialised form. This matches with description (IV) "Shares in electronic form".
- (C) Right issue: This is an invitation extended by a company to its existing shareholders to purchase additional new shares in the company, usually at a discounted price, within a specified period. Shareholders have the 'right', but not the obligation, to subscribe to these shares. This matches with description (I) "Invitation to existing shareholders to purchase additional new shares".
- (D) Sweat equity share: These are shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property rights or value additions. This matches with description (III) "Share issues by a company to its employees/directors at a discount for providing know-how".
Matching the Lists
Based on the analysis above, the correct matching is:
- (A) Bonus shares → (II) Issue is made to existing members free of charge
- (B) Demat shares → (IV) Shares in electronic form
- (C) Right issue → (I) Invitation to existing shareholders to purchase additional new shares
- (D) Sweat equity share → (III) Share issues by a company to its employees/directors at a discount for providing know-how
This matching corresponds to option (A) - (II), (B) - (IV), (C) - (I), (D) - (III).
Summary of Matching
| List I (Type of Share) | List II (Definition) | Match |
|---|---|---|
| (A) Bonus shares | (II) Issue is made to existing members free of charge | A - II |
| (B) Demat shares | (IV) Shares in electronic form | B - IV |
| (C) Right issue | (I) Invitation to existing shareholders to purchase additional new shares | C - I |
| (D) Sweat equity share | (III) Share issues by a company to its employees/directors at a discount for providing know-how | D - III |
Revision Table for Share Concepts
| Term | Key Feature | Purpose |
|---|---|---|
| Bonus Shares | Issued free to existing shareholders | Capitalize reserves, increase share capital |
| Demat Shares | Held in electronic form | Facilitate easy and safe trading |
| Right Issue | Offer new shares to existing shareholders first | Raise funds, protect existing shareholder's stake |
| Sweat Equity Share | Issued to employees/directors for know-how/value addition | Reward contribution, retain talent |
Additional Information on Share Types
Understanding the different ways companies can issue shares is crucial for finance and business students. Here are some extra details:
- Bonus Share Issuance: Bonus shares are issued from the company's accumulated profits or reserves. While the number of shares increases, the total market capitalization might not change proportionally, leading to a decrease in the share price per share. The total value of the shareholder's holding remains the same initially.
- Demat Account: To hold Demat shares, an investor needs to open a Demat account with a Depository Participant (DP), which acts as an agent of the Depository (like NSDL or CDSL in India). All share transactions are settled electronically through these accounts.
- Right Issue Details: When a company announces a Right issue, it specifies a ratio (e.g., 1:5, meaning 1 new share for every 5 shares held). Shareholders can either subscribe to their rights, sell their rights (if allowed), or let their rights lapse.
- Sweat Equity Regulations: The issuance of Sweat Equity Shares is governed by specific regulations, often requiring shareholder approval. They are a way to incentivize employees and directors, aligning their interests with the company's growth.
Important Questions from Shares
Which of the following distinction(s) is/are not correct between public issue and rights issue?
(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.
(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.
(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.
(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.
Choose the most appropriate answer from the options given below:
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
Which of the following order is followed in the issue of shares under the "Fixed Price Offer Method"?
A. Issue of a prospectus
B. Receipt by the company of application for share
C. Selection of merchant banker
D. Issue of share certificates
E. Allotment of shares to the applicant
Choose the correct answer from the options given below
A Ltd. has a share capital of 5,000 equity shares of Rs. 100 each having a market value of Rs. 150 per share. The company wants to raise additional funds of Rs. 1,20,000 and offers to the existing shareholders the right to apply for a new share at Rs. 120 for every five share held. What would be the value of right?
