business operations of the company relating to:
(A) The price of any property purchased, or to be purchased, which has to be met wholly or partly out of the proceeds
of issue;
(B) Preliminary expenses payable by the company and any commission payable in connection with the issue of shares;
(C) Working capital;
(D) Any other expenditure required for the usual conduct of business operations
Choose the correct answer from the options given below:
Minimum Subscription Explained
The concept of minimum subscription is crucial in company law and finance. It represents the smallest amount of capital that a company must raise through a public issue of shares, as determined by the directors. This minimum amount is essential to ensure the company has sufficient funds to commence its operations and meet its immediate financial needs.
The question asks what the minimum subscription relates to in terms of meeting the needs of business operations. Let's break down each component:
- (A) The price of any property purchased, or to be purchased: Companies often need capital to acquire fixed assets like property, plant, or equipment. These are fundamental to establishing and carrying out business activities. Funds raised through share issues are frequently earmarked for such significant capital expenditures.
- (B) Preliminary expenses and commission on share issue: Preliminary expenses are the costs incurred before a company is officially incorporated or before it starts its business operations (e.g., legal fees, registration costs). Commission paid for underwriting or promoting the issue of shares is also a direct cost associated with raising capital. These costs must be covered.
- (C) Working capital: This refers to the capital required for the day-to-day running of the business. It includes funds needed to manage inventory, pay salaries, cover operational expenses, and maintain smooth business operations. Adequate working capital is vital for short-term financial health.
- (D) Any other expenditure required for the usual conduct of business operations: This is a broader category that encompasses all other necessary expenses incurred in the normal course of running the business, beyond specific property purchases or working capital needs. It ensures the company can cover miscellaneous but essential operational costs.
The minimum subscription amount is calculated to ensure that all these essential requirements are met. If the company does not receive subscriptions for the minimum amount, it cannot legally proceed with allotting shares, and any money received must be refunded to the applicants. Therefore, the minimum subscription must adequately cover:
- Capital expenditure for properties ((A)).
- Costs associated with issuing shares, including preliminary expenses and commission ((B)).
- Funds needed for day-to-day operations (working capital) ((C)).
- Other necessary expenditures for the regular conduct of business ((D)).
Given that the minimum subscription must be sufficient to meet the needs related to property purchases, preliminary expenses and commissions, working capital, and other operational expenditures, all the listed items (A), (B), (C), and (D) are integral components that the minimum subscription must cover.
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:
Match List I with List II:
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 Choose the correct 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
