Taxmann's Company Law & Practice | CRACKER

Chapter-wise Marks Distribution S. No.

Chapter

1.

2018 2019 2020 2021 2022

2023 Average D

Introduction to Company Law

-

-

7

4

4

-

2.83

2.

Legal Status & Types of Registered Companies

- 10 14 15 -

3

- 14 20 13 3

-

7.66

3.

Memorandum & Articles of Associations

-

- 13 4

9

10

5

4.

Share & Share Capital

12 20 14 13 -

8 11 6 11 11 17

-

10.25

5.

Members & Shareholders

-

3

-

-

9

-

8

10

4.16

6.

Debt Instruments & Deposits

12 8 10 6

-

8

5

5

5

5

8

5

6.41

7.

Charges

4

-

3

5

-

5

6

3

3

3

-

3

2.91

8.

Distribution of Profits

4

3

3

3

-

8

5

9.

Accounts & Auditors

12 12 14 11 -

4

4

3

-

9

5

8

-

5 12 -

5

-

5

3

3 10 10 -

-

4.08

- 22 18 7 11 9

14

10.83

10. Compromise, Arrangement 8 & Amalgamations – Concepts

6

3

8

-

3

-

-

5

8

9

5

4.58

11. Dormant Company

-

6

3

3

-

3

3

6

3

3

9

5

3.66

12. Inspection, Inquiry & Investigation

-

-

-

-

-

-

-

-

-

-

-

13

13*

13. General Meetings

8 15 15 21 - 13 4 25 9 22 12 20

13.66

14. Directors

4

9 13 9 16 10

9.75

15. Board Composition & Powers of the Board

4 10 5 20 -

7 12 15 9 16 27 10

11.25

16. Meetings of Board & its Committees

4 13 14 5

- 21 -

9 22 15 5

10

9.83

17. Corporate Social Responsibility

4

-

3

5

2.91

9 13 9

3

-

I-5

4

- 17 8

3

5

5

3

-

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J D J D J D J D J D J

I-6 S. No.

CHAPTER-WISE MARKS DISTRIBUTION

Chapter

2018 2019 2020 2021 2022

2023 Average

J D J D J D J D J D J

D

18. Annual Report

8

-

3

- 10 22 5

5

-

-

-

4.41

19. Key Managerial Personnel

8 12 4

4

-

4 12 17 8

9

8

-

7.16

-

-

8

-

3

-

1.5

15

15*

20. E-Governance and MCA-21 4 21. Case Study Based Questions

-

-

3

-

-

* Newly added Chapters/Division for Syllabus 2022 from December 2023 onwards.

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Note: J: June; D: December

Previous Exam Trend Analysis Que. No.

Chapter Name

Marks

Category

1(a)

Case Study Based Question

5

Practical

1(b)

Case Study Based Question

5

Practical

1(c)

Case Study Based Question

5

Practical

2(a)

Inspection, Inquiry & Investigation

3

Practical

2(b)

Accounts & Auditors

3

Practical

Charges

3

Practical

Accounts & Auditors

6

Practical

3(a)

Compromise, Arrangement & Amalgamations – Concepts

5

Practical

3(b)

Dormant Company

5

Practical

3(c)

Debt Instruments & Deposits

5

Practical

4(a)

Inspection, Inquiry & Investigation

5

Practical

4(b)

Memorandum & Articles of Associations

5

Practical

4(c)

Members & Shareholders

5

Practical

4A(a)

Members & Shareholders

5

Descriptive

4A(b)

Inspection, Inquiry & Investigation

5

Descriptive

4A(c)

Memorandum & Articles of Associations

5

Practical

5(a)

General Meetings

5

Practical

5(b)

General Meetings

5

Practical

5(c)

General Meetings

5

Practical

5(d)

General Meetings

5

Practical

6(a)

Accounts & Auditors

5

Practical

6(b)

Meetings of Board & its Committees

5

Practical

6(c)

Directors

5

Practical

6(d)

Corporate Social Responsibility

5

Practical

I-7

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2(c) 2(d)

I-8

PREVIOUS EXAM TREND ANALYSIS

Que. No.

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6A(i)

Chapter Name

Marks

Category

Meetings of Board & its Committees

5

Practical

6A(ii)

Directors

5

Practical

6A(iii)

Board Composition & Powers of the Board

5

Practical

6A(iv)

Board Composition & Powers of the Board

5

Practical

Chapter-wise Comparison with Study Material Chapter No.

Name of the Chapter

Study Material Chapter

Introduction to Company Law

Chapter - 1

2.

Legal Status and Types of Registered Companies

Chapter - 2

3.

Memorandum and Articles of Associations

Chapter - 3

4.

Share and Share Capital

Chapter - 4

5.

Members and Shareholders

Chapter - 5

6.

Debt Instruments & Deposits

Chapter - 6

7.

Charges

Chapter - 7

8.

Distribution of Profits & Dividends

Chapter - 8

9.

Accounts and Auditors

Chapter - 9

10.

Compromise, Arrangement and Amalgamations - Concepts

Chapter - 10

11.

Dormant Company

Chapter - 11

12.

Inspection, Inquiry and Investigation

Chapter - 12

13.

General Meetings

Chapter - 13

14.

Directors

Chapter - 14

15.

Board Composition and Powers of the Board

Chapter - 15

16.

Meetings of Board and its Committees

Chapter - 16

17.

Corporate Social Responsibility

Chapter - 17

18.

Annual Report

Chapter - 18

19.

Key Managerial Personnel

Chapter - 19

20.

E-Governance and MCA-21

Chapter - 1

I-9

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1.

Contents PAGE

Chapter-wise Marks Distribution

I-5

Previous Exam Trend Analysis

I-7

Chapter-wise Comparison with Study Material

I-9

PART I COMPANY LAW - PRINCIPLES & CONCEPTS

INTRODUCTION TO COMPANY LAW

1.3

Chapter 2 LEGAL STATUS & TYPES OF REGISTERED COMPANIES

2.1

Chapter 3 MEMORANDUM & ARTICLES OF ASSOCIATIONS

3.1

Chapter 4 4.1

SHARE & SHARE CAPITAL

Chapter 5 5.1

MEMBERS & SHAREHOLDERS

Chapter 6 6.1

DEBT INSTRUMENTS & DEPOSITS

Chapter 7 7.1

CHARGES

Chapter 8 DISTRIBUTION OF PROFITS & DIVIDENDS

8.1

Chapter 9 9.1

ACCOUNTS & AUDITORS

I-11

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Chapter 1

I-12

CONTENTS PAGE

Chapter 10 COMPROMISE, ARRANGEMENT & AMALGAMATIONS – CONCEPTS

10.1

Chapter 11 11.1

DORMANT COMPANY

Chapter 12 INSPECTION, INQUIRY & INVESTIGATION

12.1

PART II COMPANY ADMINISTRATION & MEETINGS Chapter 13 GENERAL MEETINGS

13.3

Chapter 14

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DIRECTORS

14.1

Chapter 15 BOARD COMPOSITION & POWERS OF THE BOARD

15.1

Chapter 16 MEETINGS OF BOARD & ITS COMMITTEES

16.1

Chapter 17 CORPORATE SOCIAL RESPONSIBILITY

17.1

Chapter 18 ANNUAL REPORT

18.1

Chapter 19 KEY MANAGERIAL PERSONNEL

19.1

Chapter 20 E-GOVERNANCE AND MCA-21

20.1

Case Based Objective Questions

Q.1

Solved Paper: December 2023 (Suggested Answers)

P.1

4

SHARE & SHARE C H A P T E R CAPITAL TYPES OF CAPITAL 1. Distinguish between: Nominal Capital & Subscribed Capital [June 2010 (4 Marks)]

2. Distinguish between: Share and Stock.

[June 2010 (4 Marks)]

Ans.: Following are the main points of distinction between share & stock: Points Nature

Share Stock Shares in physical form bear dis- Stocks are the consolidated value tinct numbers. of share capital.

Paid-up value Shares may or may not be fully Stock is always fully paid-up. paid-up.

Nominal Shares have a nominal value.

Stock does not have any nominal value value.

Denomination All shares are of equal denomi- Denomination of stocks varies. nation.

Fractions It is not possible to transfer shares Stock is divisible into any amount into fraction. required. Thus, it is possible to transfer even into fractions.

4.1

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Ans.: Nominal, Authorized or Registered Capital [Section 2(8)]: This is the sum stated in the memorandum of association of a company limited by shares as the capital of the company with which it is registered.

It is the maximum amount which the company is authorized to raise by issuing shares.

This is the capital, on which the company had paid the prescribed fee at the time of registration; hence it is also called Registered Capital. As and when this capital is increased, fees for such increase will have to be paid to the ROC. Subscribed Capital [Section 2(86)]: It is that portion of the issued capital at face value which has been subscribed for or taken up by the subscribers of shares in the company.

4.2

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

Points Existence

Share Stock A share comes into existence Stock comes into existence after before the stock and it is issued conversion of shares into stock initially. and on conversion of shares into stock, the provisions of the Act governing the shares shall cease to apply to the share capital as it is converted into stock.

3. Distinguish between Reserve Capital & Capital Reserve.

[June 2012 (4 Marks)], [Dec. 2012 (4 Marks)] Or ‘Reserve Capital’ & ‘Capital Reserve’ are one and the same.

[Dec. 2014 (5 Marks)] Ans.: Following are the main points of distinction between reserve capital & capital reserve:

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Points Meaning

Mandatory Balance sheet disclosure Writing off capital losses Process

Reserve Capital Capital Reserve Reserve capital is that part of the Capital reserves are created out of uncalled capital of a company which capital profit. Capital reserve may the limited company has decided by be statutory capital reserve or nonspecial resolution not to call except statutory capital reserve. in the event and for the purpose of the company being wound-up.

Creation of reserve capital is not Creation of capital reserve is mandatory. mandatory in certain cases.

There is no need to disclose reserve Capital reserves are disclosed capital in balance sheet. in balance sheet under the head “Reserve & Surplus”.

Reserve capital cannot be used to Capital reserve can be used to write-off capital losses. write-off capital losses.

Special resolution is required to be Capital reserve is created out of passed at general meeting by the accounting process. shareholders.

ISSUE & REDEMPTION OF PREFERENCE SHARES 4. Preference share are cumulative unless expressly stated to be noncumulative. Comment.

[June 2011 (5 Marks)] Ans.: Dividends on preference shares, like equity shares, can be paid only out of profits.

With regard to the payment of dividends, preference shares may be cumulative or non-cumulative.

CH. 4 : SHARE & SHARE CAPITAL

4.3

A cumulative preference share confers a right on its holder to claim fixed dividend of the past and the current year and out of future profits. The dividend keeps on accumulating until it is fully paid.

The non-cumulative preference share gives right to its holder to a fixed amount or a fixed percentage of dividends out of the profits of each year. If no profits are available in any year, the shareholders get nothing, nor can they claim, unpaid dividend in any subsequent year.

Preference shares are cumulative unless expressly stated to be non-cumulative.

5. What are the conditions which must be fulfilled for issue and redemption of preference shares? [June 2011 (6 Marks)], [June 2015 (5 Marks)] Ans.: Issue & Redemption of Preference Shares [Section 55]: (1) Irredeemable preference shares cannot be issued: No company limited by shares shall issue any preference shares which are irredeemable.

(2) Period for which preference shares can be issued: If authorized by its articles, a company limited by shares may issue preference shares which are liable to be redeemed within a period not exceeding 20 years from the date of their issue subject to prescribed conditions.

As per Rule 10 of the Companies (Share Capital & Debentures) Rules, 2014, a company engaged in the setting-up and dealing with of infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum 10% of such preference shares per year from the 21st year onwards or earlier, on proportionate basis, at the option of the preference shareholders. The term ‘‘infrastructure projects’’ means the infrastructure projects specified in Schedule VI. (3) Source of funds for redemption: Preference shares shall be redeemed: (a) Out of the profits of the company which would otherwise be available for dividend. (b) Out of the proceeds of a fresh issue of shares. (c) Partly out the profits of the company and partly out of the proceeds of a fresh issue of shares.

(4) Paid-up value of redemption: Preference shares shall be redeemed only if they are fully paid-up.

(5) Capital Redemption Reserve Account: Where preference shares are proposed to be redeemed out of the profits a sum equal to the nominal

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However, a company may issue preference shares for a period exceeding 20 years for infrastructure projects, subject to the redemption of prescribed percentage of shares on an annual basis at the option of such preferential shareholders.

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4.4

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

amount of the shares should be transferred to the Capital Redemption Reserve Account.

Capital Redemption Reserve Account may be applied for issue of fully paid-up bonus shares.

(6) Premium on redemption of preference shares: (i) In case of prescribed class of companies whose financial statement required to comply with the prescribed accounting standards under section 133, the premium, if any, payable on redemption shall be provided for out of the profits of the company, before the shares are redeemed. (ii) In a other cases, the premium payable on redemption shall be provided for: (a) Out of the profits of the company. (b) Out of the company’s securities premium account, before such shares are redeemed. (c) Partly out the profits of the company and partly out of securities premium account.

(7) Redemption of preference shares by issue of further redeemable preference shares: Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares referred as unredeemed preference shares), it may, with the consent of the holders of 3/4th in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.

While giving approval, the Tribunal shall order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares.

Explanation: The issue of further redeemable preference shares or redemption of preference shares shall not be deemed to be an increase or a reduction, in the share capital of the company.

6. Whether equity shares already issued can be converted into redeemable preference shares?

[Dec. 2012 (4 Marks)] Ans.: There is not specific provision in the Companies Act, 2013 regarding conversion of equity shares into redeemable preference shares. However, it was held that where the equity shares are to be converted into redeemable preference shares it was necessary to adopt the process of reduction of capital u/s 66 of the Companies Act, 2013. [Re. Chowgule & Co. (P.) Ltd., St. James Court Estates Ltd.]

CH. 4 : SHARE & SHARE CAPITAL

4.5

7. In no circumstances a company can issue redeemable preference shares with a redemption period of 20 years.

[June 2015 (5 Marks)] Ans.: As per Section 55 of the Companies Act, 2013, a company limited by shares shall not issue preference shares which are irredeemable.

A company limited by shares may issue preference shares which are liable to be redeemed within a period 20 years from the date of issue.

As per Rule 10 of the Companies (Share Capital & Debentures) Rules, 2014, a company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum ten percent of such preference shares per year from the 21st year onwards or earlier, on proportionate basis, at the option of the preference shareholders. The term ‘‘infrastructure projects’’ means the infrastructure projects specified in Schedule VI. Thus, it is incorrect to say that in no circumstances a company can issue redeemable preference shares with a redemption period of 20 years.

8. Distinguish between: Preference Share Capital & Equity Share Capital [Dec. 2015 (4 Marks)]

Points Dividend

Preference Share Capital Equity Share Capital Preference shares are entitled Rate of dividend on equity shares to a fixed rate of dividend. is recommended by the board of directors in its report to the shareholders, which is approved by the shareholders at the AGM. Preference in Dividend on the preference Dividend on equity shares is paid dividend shares is paid in preference to only after preference dividend the equity shares. has been paid.

Preference in In case of winding-up, prefer- In case of winding-up, equity winding-up ence shareholders get preference shareholders get payment of over equity share holders with capital after the payment of capital regard to the payment of capital. to preference shareholders.

Cumulativeness Dividend on preference share Dividend on equity shares is not may be cumulative. cumulative.

Voting rights Voting rights of preference An equity shareholder can vote on shareholders are restricted. As all matters affecting the company. per Section 47(2), a preference shareholder can vote only in following cases: (a) When his special rights as a preference shareholder are being varied.

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Ans.: Following are the main points of distinction between preference share capital & equity share capital:

4.6 Points

Bonus & right shares

Redemption

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

Preference Share Capital (b) Any resolution for the winding-up of the company or for the repayment or reduction of its equity or preference share capital.

Equity Share Capital

(c) If preference dividend has not been paid for a period of 2 years or more.

No bonus shares/right shares A company may issue rights are issued to preference share shares or bonus shares to the holders c o m p a n y ’s e x i s t i n g e q u i t y shareholders.

Preference shares are liable to Equity shares cannot be redeemed be redeemed within a period 20 except under a scheme involving years from the date of issue. reduction of capital or buy-back of its own shares.

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ISSUE OF SHARES AT PREMIUM 9. Securities premium shall be utilized only for certain specific purposes only. Comment.

[Dec. 2013 (4 Marks)] Or Amount lying in the securities premium account belongs to the shareholders and can be used freely for their benefit. [June 2021 (5 Marks)] Ans.: A company may issue securities at a premium when it is able to sell them at a price above face value. The Companies Act, 2013, does not stipulate any conditions or restrictions regulating the issue of securities by a company at a premium. However, it imposes conditions regulating the utilization of the amount of premium collected on securities.

Securities Premium Account [Section 52(1)]: Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a “securities premium account” and the provisions of the Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.

Conditions relating to utilization of securities premium [Section 52(2)]: Securities premium can be used by the company for the following purposes: (a) Issuing fully paid bonus shares. (b) Writing off the preliminary expenses. (c) Writing off commission or discount or the expenses on issue of shares or debentures.

CH. 4 : SHARE & SHARE CAPITAL

4.7

(d) Writing off premium on redemption of redeemable preference shares or debentures. (e) Buy-back of face value of shares and writing off premium on buy-back.

Conditions relating to utilization of securities premium in case of prescribed class of companies [Section 52(3)]: In case of prescribed class of companies whose financial statement comply with the accounting standards prescribed under section 133, securities premium account can be used for the following purposes: (i) Issuing fully paid-up bonus shares. (ii) Writing off expenses or commission or discount on any issue of equity shares. (iii) Buy-back of face value of shares and writing off premium on buy-back.

10. In view of provisions of the Companies Act, 2013 relating to ‘securities premium’, state whether the amount lying in securities premium account of a company can be used: (i) For issuance of Bonus shares; and

Ans.: Conditions relating to utilization of securities premium [Section 52(2)]: Please refer to Answer of Question No. In view of above provisions, answer to given case is as follows: (i) Company can use the amount laying in securities premium for issuance of bonus shares. (ii) Company cannot use the amount laying in securities premium for payment of dividend declared by the company at its general meeting.

11. Radhika Textile Limited has utilized the securities premium during the financial year 2016-2017 as follows: (i) ` 15 lakh against expense of foreign travelling of directors. (ii) ` 5 lakh for writing-off the balance of preliminary expenses of the company. (iii) ` 10 lakh distributed as dividend for the financial year ending 31st March, 2017.

You, being the secretarial Auditor of the company, referring to the provision of the Companies Act, 2013 relating to securities premium account, examine the validity of the above.

[June 2017 (8 Marks)] Ans.: Conditions relating to utilization of securities premium [Section 52(2)]: Please refer to Answer of Question No.

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(ii) For payment of dividend declared by the company at its General Meeting.

[Dec. 2015 (4 Marks)]

4.8

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

In view of above provisions, answer to given case is as follows: (i) Balance in securities premium cannot be utilized for writing-off expenses of foreign travelling of directors. (ii) Balance in securities premium can be utilized writing-off preliminary expenses of the company. (iii) Balance in securities premium cannot be utilized for payment of dividend.

ISSUE OF SHARES AT DISCOUNT

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12. Write a short note on: Issue of shares at discount [June 2001 (6 Marks)], [Dec. 2001 (6 Marks)] Ans.: Prohibition on issue of shares at discount [Section 53]: Except as provided in Section 54 [issue of sweat equity shares], a company shall not issue shares at a discount.

Any share issued by a company at a discount price shall be void.

However, a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the RBI under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.

Penalty: Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or ` 5 lakh, whichever is less.

The company shall also be liable to refund all monies received with interest at the rate of 12% p.a. from the date of issue of such shares to the persons to whom such shares have been issued.

SWEAT EQUITY SHARES 13. Write a short note on: Sweat Equity Shares

[Dec. 2014 (4 Marks)]

Ans.: Sweat Equity Shares [Section 2(88)]: Sweat equity shares means equity 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, by whatever name called.

Issue of sweat equity shares [Section 54]: A company can issue sweat equity shares, of a class of shares already issued, if the following conditions are satisfied: (a) The issue has been authorized by a special resolution passed by the company in the general meeting. (b) Such special resolution should clearly specify:

CH. 4 : SHARE & SHARE CAPITAL

4.9

- Number of shares - Current market price - Consideration and - Classes of directors or employees to whom such equity shares are to be issued. (c) At least 1 year should have elapsed from the date on which the company was entitled to commence business. [Deleted by the Companies (Amendment) Act, 2017] (d) A company whose shares are listed on a recognized stock exchange issuing sweat equity shares should comply with the SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021.

14. The share capital of Raney Ltd. is ` 30 Crore. ‘Russel’ is appointed as the managing director of the company, the company wants to compensate him by issue of shares for supplying technical know-how without any cost.

In this context, answer the following: (i) Whether the company is allowed to allot such shares? (ii) Is approval of shareholders required for issuing such shares? (iii) If found eligible to allot such shares, what will be the quantum (value) of shares that can be allotted? (iv) Can Russel sell such allotted shares in the market? (v) Will the amount that he receives on sale of his shares be considered a part of his remuneration?

[Dec. 2019 (1 × 5 = 5 Marks)] Ans.: Considering provisions of Section 2(88), Section 54 of the Companies Act, 2013 read with the Companies (Share Capital & Debentures) Rules, 2014 relating to Sweat Equity Shares, answer to given case is as follows: (i) Sweat equity shares can be issued by a company to its directors or employees for providing know-how or making available rights in the nature of intellectual property rights or value additions. Thus, the company can compensate its managing director by issuing to Sweat Equity Shares for providing technical know-how. (ii) The special resolution is required to be passed for issue of sweat equity shares. Such resolution is valid for making the allotment within a period

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(e) A company whose shares are not so listed should comply with the Companies (Share Capital & Debentures) Rules, 2014.

Rights, limitations, restrictions applicable to sweat equity shares [Section 54(2)]: The rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall be applicable to the sweat equity shares issued and the holders of sweat equity shares shall rank pari passu (on an equal footing) with other equity shareholders.

4.10

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

of not more than 12 months from the date of passing of the special resolution. (iii) The company shall not issue sweat equity shares for more than 15% of the existing paid-up equity share capital in a year or shares of the issue value of ` 5 Crore, whichever is higher.

As the paid-up share capital of the company is ` 30 Crore. The company can allot sweat equity shares of ` 4.5 Crore (30 Crore × 15%) or ` 5 Crore, whichever is higher.

Thus, Raney Ltd. can allot maximum ` 5 Crore value of sweat equity shares to its directors and employees. (iv) Sweat equity shares issued to directors or employees shall be locked-in/ non-transferable for a period of 3 years from the date of allotment and the fact that the share certificates are under lock-in and the period of expiry of lock in shall be stamped in bold or mentioned in any other prominent manner on the share certificate.

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Hence, the sweat equity shares allotted to Russel can be sold in the market only after the expiry of the lock-in period of 3 years. (v) The amount of sweat equity shares issued shall be treated as part of managerial remuneration for the purposes of Sections 197 & 198 of the Companies Act, 2013, if the following conditions are fulfilled – (a) Sweat equity shares are issued to any director or manager; and (b) They are issued for consideration other than cash, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the applicable accounting standards.

In simple words, amount of sweat equity shares issued shall be treated as part of managerial remuneration only if it is expensed in the books of the company.

15. Sita Ltd. intends to issue sweat equity shares to its employees for a non-cash consideration. Managing Director believes that the sweat equity shares can only be issued for consideration received in cash. Do you agree?

[June 2022 (3 Marks)] Ans.: Sweat Equity Shares [Section 2(88)]: Sweat equity shares means equity 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, by whatever name called.

As per Section 54 of the Companies Act, 2013, a company may issue sweat equity shares of a class of shares already issued, if the issue is authorized by a special resolution passed by the company. Such resolution specifies the number of shares, the current market price, consideration and the class or classes of directors or employees to whom such equity shares are to be issued.

CH. 4 : SHARE & SHARE CAPITAL

4.11

Further, as per Rule 8(9) of the Companies (Share Capital & Debentures) Rules, 2014, company can issue sweat equity shares for non-cash consideration on the basis of valuation report in respect thereof obtained from a registered valuer.

Based on above provisions, we can conclude that the view of the Managing Director is not correct.

16. Draft a specimen resolution for allotment of sweat equity shares to the Chairman & Managing Director (CMD) of a listed company. Also state the type of meeting and kind of resolution to be passed referring to the provisions of the Companies Act, 2013.

[Dec. 2022 (5 Marks)] Ans.: Type of meeting: General Meeting Kind of resolution: Special Resolution Specimen resolution:

RESOLVED FURTHER THAT the Equity Shares to be allotted shall rank pari passu with the existing Equity Shares of the Company.

RESOLVED FURTHER THAT the price of the same shall be determined as prescribed under Regulation 33 of the SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021.

RESOLVED FURTHER THAT Mr. ________ (Company Secretary) and Mr. ________ (Director) be and are hereby authorized to do all such acts and deeds as may be deemed necessary for giving effect to the aforementioned resolution.

SHARES WITH DIFFERENTIAL VOTING RIGHTS 17. Board of directors of Progressive Limited decides to issue equity shares of a company with differential voting rights. Examining the provision of Companies Act, 2013, State the conditions to be complied with the company in this regard.

[Dec. 2016 (8 Marks)] Ans.: Shares with differential rights: Shares with differential rights means shares issued with differential rights as to dividend, voting or otherwise in accordance with Section 43(a)(ii) of the Companies Act, 2013.

Conditions for issuing shares with differential rights: Rule 4 of the Companies (Share Capital & Debentures) Rules, 2014 provides that no company

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RESOLVED THAT subject to the provisions of Section 54 of the Companies Act, 2013 read with Rule 8 of the Companies (Share Capital & Debentures) Rules, 2014, in accordance with the SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021, the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 consent of the members be and is hereby accorded to allot ________ Equity Shares as Sweat Equity Shares of ` ________ each to Mr. ________ Chairman & Managing Director of the Company holding DIN ________, for the value addition he continues to create in 4 years while in employment of the Company, in such tranches as may be decided from time to time within the time permissible under relevant regulation, at ` ________ per share on the basis of the valuation reports dated ________ from (SEBI Category-I Merchant Banker) & from ________ Registered Valuer.

4.12

PART I : COMPANY LAW - PRINCIPLES & CONCEPTS

limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions: (1) Authorization from AOA: The article of association authorizes the issue of shares with differential rights.

(2) Resolution: The issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders.

However, in case of listed company the issue of such shares shall be approved by the shareholders through postal ballot.

(3) Limit on voting power: Voting power in respect of shares with differential rights of the company shall not exceed 74% of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

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(4) Track record of profits: The company having consistent track record of distributable profits for the last 3 years.

(5) No default in financial statements & annual returns: The company has not defaulted in filing financial statements and annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue such shares.

(6) No subsisting default in certain matters: The company has no subsisting default in following: (a) Payment of a declared dividend to its equity shareholders. (b) Repayment of its matured deposits. (c) Redemption of its preference shares or debentures that have become due for redemption. (d) Payment of interest on deposits or debentures. (e) Payment of preference dividend.

(7) No defaults in respect of dividend, term loans etc.: The company has not defaulted in following: (a) Dividend on preference shares. (b) Repayment of any term loan from a public financial institution or State level financial institution or scheduled bank that has become repayable or interest payable thereon. (c) Dues with respect to statutory payments relating to its employees to any authority. (d) In crediting the amount in Investor Education & Protection Fund to the Central Government.

However, a company may issue equity shares with differential rights upon expiry of 5 years from the end of the financial Year in which such default was made good.

COMPANY LAW & PRACTICE CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: N.S. Zad, Divya Bajpai : TAXMANN : 24/01/2024 : 2ND EDITION : 9789357789493 : 656 : PAPERBACK

Rs. 510

DESCRIPTION This book is prepared exclusively for the Executive Level of Company Secretary Examination requirement as per the New Syllabus. It covers the (topic-wise) questions & detailed (point-wise) answers strictly as per the latest examination pattern.

The Present Publication is the 2nd Edition for the CS Executive | New Syllabus | June/Dec. 2024 Exams. This book is authored by CS N.S. Zad & CS Divya Bajpai, with the following noteworthy features: • Strictly as per the New Syllabus of the ICSI • Coverage of this book includes o Fully-Solved Questions of the Previous Exams (including the Dec. 2023 Exam) as per the latest examination pattern o [Topic-wise Arrangement of Questions] for Past Exams o Case-Based Objective Questions • [Chapter-wise Marks Distribution] from June 2018 onwards • [Previous Exam Trend Analysis] from Dec. 2023 • [Comparison with ICSI Study Material] is provided chapter-wise • [Most Amended & Updated] Covers the latest applicable provisions and amendments under the respective laws

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