The effect of surrender of shares is the same as of shares':
Understanding the different actions related to shares in a company is crucial. This question asks about the effect of surrender of shares and how it compares to other share actions.
Understanding Surrender of Shares
Surrender of shares happens when a shareholder voluntarily gives back their shares to the company. This usually occurs when the shareholder is unable to pay the remaining amount due on the shares, such as calls made by the company. Instead of waiting for the company to take action, the shareholder chooses to surrender the shares.
Understanding Forfeiture of Shares
Forfeiture of shares, on the other hand, is a compulsory action taken by the company. If a shareholder fails to pay the calls due on their shares within the specified time, the company can forfeit those shares according to its Articles of Association. This means the company takes back the shares, and any amount already paid by the shareholder on those shares is usually lost.
Comparing Surrender and Forfeiture
While one is voluntary (surrender) and the other is compulsory (forfeiture), the effect from the company shares' perspective is largely the same. In both cases:
- The shares return to the company.
- The person ceases to be a shareholder for those specific shares.
- The company can then deal with these shares, often by re-issuing them to another party.
Because the end result for the company and the status of the shares are similar – the shares becoming available to the company again – the effect of surrender of shares is considered to be the same as the effect of forfeiture of shares.
Other Options
- Issue of shares: This is when a company initially sells new shares to the public or existing shareholders, increasing its share capital. This is fundamentally different from taking back shares.
- Re-issue of shares: This occurs when the company sells shares that were previously forfeited or surrendered. This happens *after* forfeiture or surrender, not as the effect of it.
Therefore, the effect of surrender of shares is the same as the effect of forfeiture of shares because in both scenarios, the shares go back to the company and can be subsequently re-issued, impacting the company shares structure similarly.
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
