Showing posts with label SP. Show all posts
Showing posts with label SP. Show all posts

HSC Secretarial Practice Important Question Bank 2026

H.S.C – S.P – QUESTION BANK & SOLUTIONS Important for Board Exam 2026

SOURCE: OMTEX Classes
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Important Chapters: 1 to 8

Long Answers

1) What is share and state its features?

Meaning: According to Section 2(84) of the Companies Act, 2013, "Share means a share in the share capital of a company and includes stock." It is the smallest unit in the total share capital of a company.

Features of Shares:
  1. Meaning: It is the smallest unit of share capital.
  2. Ownership: The owner of a share is called a shareholder. It shows the ownership of the shareholder in the company.
  3. Distinctive Number: Each share has a distinct number for identification (except in Demat form).
  4. Evidence of Title: A share certificate is issued as proof of ownership.
  5. Value of a Share: It has Face Value, Issue Price, and Market Value.
  6. Rights: It confers rights like receiving dividends, attending meetings, and voting.
  7. Income: Shareholders get a share in the net profit called Dividend.
  8. Transferability: Shares of a public limited company are freely transferable.
2) What is an equity share? Explain its features.

Meaning: Equity shares are those shares which are not preference shares. They do not enjoy preference for dividend payment or repayment of capital.

Features:
  1. Permanent Capital: The amount is not refunded during the lifetime of the company (except buy-back).
  2. Fluctuating Dividend: The rate of dividend depends on profit; it is not fixed.
  3. Rights: They enjoy voting rights, right to share profit, right to inspect books, and right to transfer shares.
  4. No Preferential Rights: They are paid dividend and capital after preference shareholders.
  5. Controlling Power: Equity shareholders are the real masters/owners of the company.
  6. Risk Capital: They bear the maximum risk in the company.
  7. Bonus Issue: Only equity shareholders are entitled to bonus shares.
3) Explain the different types of preference shares.
Types of Preference Shares:
  1. Cumulative Preference Shares: Unpaid dividends accumulate and are paid in future years.
  2. Non-Cumulative Preference Shares: Dividend is lost if not paid in a particular year.
  3. Participating Preference Shares: They get a fixed dividend + a share in surplus profit.
  4. Non-Participating Preference Shares: They get only the fixed rate of dividend.
  5. Convertible Preference Shares: Can be converted into equity shares after a specific period.
  6. Non-Convertible Preference Shares: Cannot be converted into equity shares.
  7. Redeemable Preference Shares: Capital is repaid after a fixed period.
  8. Irredeemable Preference Shares: Capital is not repaid during the lifetime (Note: As per Companies Act 2013, companies cannot issue irredeemable shares).
4) What are preference shares? State its features.

Meaning: Preference shares are shares that have preferential rights regarding payment of dividend and repayment of capital upon winding up.

Features:
  1. Preference for Dividend: First right to receive dividend before equity shares.
  2. Preference for Repayment of Capital: First right to get capital back during winding up.
  3. Fixed Return: The rate of dividend is pre-determined and fixed.
  4. Nature of Capital: It is safe capital provided by cautious investors.
  5. Market Value: Usually remains stable compared to equity shares.
  6. Voting Rights: They do not have normal voting rights; they vote only on matters affecting their interest.
  7. No Bonus Shares: They are not entitled to bonus issues.
5) What is Debenture? Discuss the different types of debentures.

Meaning: 'Debenture' comes from the Latin word 'debere' (to owe). It is an instrument acknowledging a debt by the company.

Types of Debentures:
  1. Secured Debentures: Backed by a charge on company assets.
  2. Unsecured Debentures: No security is offered.
  3. Registered Debentures: Name of the holder is recorded in the Register of Debenture Holders.
  4. Bearer Debentures: Transferable by mere delivery; name not registered.
  5. Redeemable Debentures: Repaid after a specific period.
  6. Irredeemable Debentures: Repaid only at the time of winding up.
  7. Convertible Debentures: Can be converted into equity shares.
  8. Non-Convertible Debentures: Cannot be converted into shares.
6) Define Debenture and explain the features of debentures.

Definition: Section 2(30) of Companies Act 2013: "Debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not."

Features:
  1. Promise: It is a written promise to repay a debt.
  2. Face Value: Usually has a high face value (e.g., ₹100 or multiples).
  3. Time of Repayment: The due date for principal repayment is specified.
  4. Interest: Fixed rate of interest is paid periodically, regardless of profit.
  5. Parties: Company, Trustees, and Debenture holders.
  6. Authority to Issue: Board of Directors has the power to issue debentures.
  7. Status of Holder: Debenture holder is a creditor of the company.
  8. Security: Usually secured by a charge on assets.
7) Explain the two methods a company can use to make its public offer of shares.

Public Offer: Offering shares to the general public.

  1. Initial Public Offer (IPO):
    • This is the first time a company offers its shares to the public.
    • It is done by an unlisted public company to get listed.
    • Usually done to raise capital for expansion.
  2. Further Public Offer (FPO):
    • This happens when an already listed company makes a fresh issue of shares to the public.
    • It is subsequent to an IPO.
    • Used to raise additional capital.

Secretarial Practice Board Papers

8) Explain briefly the different types of shares offered by a company to its existing Equity shareholders.
  1. Rights Issue:
    • Shares offered to existing equity shareholders in proportion to their existing holding.
    • It is a pre-emptive right.
    • Usually offered at a price lower than the market price.
  2. Bonus Shares:
    • Shares issued free of cost to existing equity shareholders.
    • Issued out of accumulated profits or reserves (Capitalization of reserves).
    • Given in proportion to existing holdings.
    • It is a gift to shareholders.
9) Explain the statutory provisions for allotment of shares.

These are provisions laid down by the Companies Act, 2013:

  1. Registration of Prospectus: A copy must be filed with the Registrar of Companies (ROC).
  2. Application Money: Must be at least 5% of the face value (or as specified by SEBI, typically 25%).
  3. Minimum Subscription: 90% of the issue size must be subscribed within 30 days of opening the issue.
  4. Closing of Subscription List: The list must be open for at least 3 working days and not more than 10.
  5. Basis of Allotment: Must be decided in consultation with the Stock Exchange.
  6. Oversubscription: Allotment must be pro-rata or as per SEBI guidelines.
  7. Permission to Deal: Application to stock exchange for listing must be made.
10) Briefly explain the provisions of Companies Act, 2013 for issue of debentures.
  1. No Voting Rights: Company cannot issue debentures with voting rights.
  2. Types: Can issue secured/unsecured, convertible/non-convertible debentures.
  3. Payment of Interest and Redemption: Must be done as per terms. Default leads to penalties.
  4. Debenture Certificate: Must be issued within 6 months of allotment.
  5. Debenture Redemption Reserve (DRR): Company must create DRR out of profits available for dividend.
  6. Appointment of Debenture Trustees: Mandatory if prospectus is issued to more than 500 people.
  7. Debenture Trust Deed: Must be executed to protect the interest of holders.

Short Notes

1) Factors affecting fixed capital requirement / working capital requirement
  • Fixed Capital Factors: Nature of business (Manufacturing needs more), Scale of operation, Scope of production, Lease or buy decision, Arrangement of sub-contracts, Old or new assets.
  • Working Capital Factors: Nature of business (Service/Trading), Volume of sales, Length of production cycle, Credit terms (allowed vs received), Growth and expansion, Inflation.
2) Features of Bonds / Interest
  • Bonds: Debt security, Long-term finance, Creditor status, Fixed interest rate, Repayment at maturity, No voting rights.
  • Interest: It is the cost of borrowed capital. It is a fixed liability. Paid periodically. Tax-deductible expense. Paid to Debenture holders/Depositors/Banks.
3) Functions of Stock Exchange / SEBI
  • Stock Exchange: Mobilization of savings, Capital formation, Pricing of securities, Economic barometer, Protection of investors, Liquidity provider.
  • SEBI (Securities and Exchange Board of India): Protect interests of investors, Promote development of securities market, Regulate the market, Register and regulate intermediaries (brokers), Prohibit insider trading.
4) Rules governing unpaid and unclaimed dividend
  • Unpaid Dividend Account: If dividend is not claimed within 30 days of declaration, company must transfer it to 'Unpaid Dividend Account' within 7 days.
  • IEPF: Any money remaining in the Unpaid Dividend Account for 7 years must be transferred to the Investor Education and Protection Fund (IEPF).
  • Details: Company must publish details of such shareholders on its website.
5) General principles / rules for allotment of shares
  • Proper Authority: Only Board of Directors can allot.
  • Against Application: Allotment only against written application.
  • Reasonable Time: Within 60 days of receipt of application money.
  • Communication: Letter of Allotment or Advice must be sent.
  • Absolute and Unconditional: Must match the terms of the prospectus.
6) Contents of Shares Certificate / Circular or Advertisement for Deposit
  • Share Certificate: Company name, CIN, Folio No., Name of member, No. of shares, Distinctive numbers, Amount paid-up, Common Seal, Signatures of 2 Directors + Secretary.
  • Circular for Deposits: Financial position, Credit rating, Details of the scheme (tenure, interest), Management details, statutory declarations.
7) Explain DP as the constituent of Depository system

Depository Participant (DP):

  • Agent of the Depository (NSDL/CDSL).
  • Link between the investor and the Depository.
  • Usually banks, brokers, or financial institutions.
  • Investors open Demat accounts with the DP.
  • DP executes instructions of the investor (buying/selling).
8) Advantages of Depository system to Investor
  • Safety: Elimination of risks like theft, loss, or mutilation of certificates.
  • Speed: Immediate transfer and settlement.
  • Convenience: Easy portfolio monitoring.
  • Cost-effective: No stamp duty on transfer.
  • Automatic updates: Bonus, rights, and dividends are credited automatically.
9) Amount of deposits that different types of companies can collect by way of deposits
  • Private Company: Up to 100% of paid-up capital + free reserves.
  • Public Company (Non-Eligible): Up to 35% of paid-up capital + free reserves (from members only).
  • Eligible Public Company:
    • From Members: Up to 10%
    • From Public: Up to 25%
    • Total: 35% of paid-up capital + free reserves.
  • Government Company: Up to 35% of paid-up capital + free reserves.
10) Book Building Method
  • A method of issuing shares where the price is not fixed by the company but discovered through bidding.
  • Company issues a 'Red Herring Prospectus' with a price band (Floor Price and Cap Price).
  • Investors bid for shares within the range.
  • The final price (Cut-off price) is determined based on demand.
  • Used commonly in IPOs.
11) State the provisions related to issue of Bonus Shares
  • Authorized by Articles of Association.
  • Recommended by Board and approved by shareholders.
  • Cannot be issued out of revaluation reserves.
  • No default in payment of interest/principal on debts.
  • Shares made fully paid up before bonus issue.
  • Once announced, cannot be withdrawn.

Letters

Note: For all letters, assume standard layout: Heading (Company Name, Address), Date, Reference No., Inside Address, Subject, Salutation, Body, Closing, and Enclosures.

1) Write a letter to the shareholder regarding issue of Bonus Shares.
SUNRISE INDUSTRIES LTD.
12, MIDC, Andheri (E), Mumbai - 400093.
Ref: B/2025/22 Date: 15th Jan 2025

To,
Mr. Rahul Sharma,
Pune.

Subject: Issue of Bonus Shares

Dear Sir,
I am directed by the Board of Directors to inform you that in accordance with the resolution passed at the Extra-Ordinary General Meeting held on 10th Jan 2025, shareholders have approved the issue of Bonus Shares in the ratio of 1:1 (one bonus share for every one equity share held).

Details of your holding and bonus shares allotted:
1. Shares held on Record Date: 100
2. Bonus Shares Allotted: 100
3. Total Holding: 200
4. DP ID / Client ID: IN300123 12345678

The bonus shares have been credited to your Demat account.

Thanking you,
Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
2) Write a letter to the member for the issue of Share Certificate.
SUNRISE INDUSTRIES LTD.
Subject: Issue of Share Certificate

Dear Madam,
We are pleased to inform you that your request for the issue of physical share certificates has been processed. In accordance with your application and subsequent allotment, the share certificate is enclosed herewith.

Details:
Folio No: A-102
Certificate No: 5501
Distinctive Nos: 1001 to 1100
No. of Shares: 100

Kindly acknowledge the receipt.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
Encl: Share Certificate
3) Draft a letter of allotment to debenture holder.
SUNRISE INDUSTRIES LTD.
Subject: Allotment of Debentures

Dear Sir,
With reference to your application dated 1st Jan 2025, we are pleased to inform you that the Board of Directors has allotted you 100, 10% Secured Non-Convertible Debentures of ₹100 each.

Details:
1. No. of Debentures applied: 100
2. No. of Debentures allotted: 100
3. Amount Received: ₹10,000
4. Interest Rate: 10% p.a.

The Debenture Certificate will be sent to you shortly / credited to your Demat account.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
4) Write a letter to the debenture holder regarding payment of interest through Interest Warrant.
Subject: Payment of Interest on Debentures

Dear Sir,
I am directed to inform you that the Board of Directors has approved the payment of interest @ 10% p.a. on your debentures for the year ended 31st March 2025.

Please find enclosed the Interest Warrant No. IW-202 for ₹1,000/- (Rupees One Thousand Only), being the interest due on your holding of 100 debentures. TDS has been deducted as applicable.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
Encl: Interest Warrant
5) Draft a letter to debenture holder informing him about redemption of debentures.
Subject: Redemption of Debentures

Dear Sir,
This is to inform you that the 10% Non-Convertible Debentures issued by the company in 2020 are due for redemption on 31st March 2025.

Please surrender your original Debenture Certificate No. 450 at the company's registered office along with the enclosed Discharge Form, duly filled and signed. Upon receipt, the redemption amount will be transferred to your bank account / sent via cheque.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
6) Write a letter to depositor regarding renewal of his deposit.
Subject: Renewal of Fixed Deposit

Dear Sir,
We received your application dated 10th Jan 2025 regarding the renewal of your Fixed Deposit Receipt No. 505 for a further period of one year.

We are pleased to inform you that the Board has approved the renewal. The new Fixed Deposit Receipt (No. 605) is enclosed herewith.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
Encl: New Fixed Deposit Receipt
7) Draft a letter of thanks to the depositor of a company.
Subject: Acknowledging Receipt of Deposit

Dear Sir/Madam,
We are in receipt of your application dated 1st Jan 2025 along with a Cheque of ₹50,000/- for placement in Fixed Deposit Scheme.

We thank you for the confidence shown in our company. The official Fixed Deposit Receipt will be sent to you within 21 days as per statutory requirements.

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary
8) Draft a letter to depositor informing him about payment of interest electronically.
Subject: Electronic Payment of Interest on Deposit

Dear Sir,
We are pleased to inform you that interest on your Fixed Deposit for the year ended 31st March 2025 has been remitted electronically to your bank account.

Details:
Deposit Receipt No: 808
Interest Amount: ₹5,000
Bank Name: HDFC Bank
Account No: XXXXXX1234
Date of Credit: 5th April 2025

Yours faithfully,
For Sunrise Industries Ltd.,
Sd/-
Company Secretary

Distinguish Between

1) Fixed Capital and Working Capital
Point Fixed Capital Working Capital
Meaning Capital used for buying fixed assets. Capital used for day-to-day operations.
Nature Stays in business almost permanently. Circulating capital (keeps changing).
Purpose To acquire land, building, machinery. To buy raw materials, pay wages.
Risk High risk involved. Less risk involved.
2) Equity Shares and Preference Shares
Point Equity Shares Preference Shares
Dividend Rate Fluctuating (depends on profit). Fixed rate.
Voting Rights Full voting rights. No voting rights (generally).
Refund of Capital Last priority (after pref. shares). Priority over equity shares.
Risk High risk. Low risk (safe capital).
Bonus Shares Eligible for bonus shares. Not eligible.
3) Share and Debenture
Point Share Debenture
Status Owner of the company. Creditor of the company.
Nature Owned capital. Borrowed capital (Loan).
Return Dividend. Interest.
Certainty of Return Uncertain (only if profit exists). Fixed and certain (paid even in loss).
Voting Has voting rights. No voting rights.
4) Owned Capital and Borrowed Capital
Point Owned Capital Borrowed Capital
Source Shares, Retained Earnings. Debentures, Bonds, Deposits, Loans.
Return Dividend (Fluctuating). Interest (Fixed).
Repayment Not repaid (except winding up). Repaid after a fixed period.
Control Holders have control (voting). No control over management.
5) Rights Shares and Bonus Shares
Point Rights Shares Bonus Shares
Price Paid by shareholder (usually discounted). Free of cost (Gift).
Purpose To raise fresh capital. To capitalize accumulated profits.
Subscription Shareholder can accept or renounce. Automatically allotted.
Cash Inflow Company receives cash. No cash inflow for company.
6) Transfer of Shares and Transmission of Shares
Point Transfer Transmission
Nature Voluntary act of shareholder. Involuntary (Operation of Law).
Cause Sale or gift. Death, insolvency, or insanity.
Consideration Money is involved (usually). No money involved.
Instrument Transfer deed required. No transfer deed required.
7) Final Dividend and Interim Dividend
Point Final Dividend Interim Dividend
Declaration Declared at AGM after year-end. Declared between two AGMs.
Authority Recommended by Board, Declared by Members. Declared by Board of Directors.
Source Current profit or Free reserves. Current year's profit only.
Revocation Cannot be cancelled once declared. Can be cancelled before payment (rare).
8) Dividend and Interest
Point Dividend Interest
Meaning Return on investment in shares. Return on borrowed capital/loan.
Paid to Shareholders (Owners). Creditors (Debenture holders/Lenders).
Obligation Not compulsory (unless preference). Compulsory liability.
Tax Appropriation of profit (Not deductible). Charge against profit (Tax deductible).
9) Primary market and Secondary market
Point Primary Market (New Issue) Secondary Market (Stock Exchange)
Securities New securities issued for the first time. Existing securities are traded.
Parties Company and Investors. Investor and Investor.
Price Fixed by company. Determined by demand and supply.
Location No fixed geographical location. Specific physical place (or electronic platform).
10) Money market and Capital market
Point Money Market Capital Market
Duration Short-term funds (up to 1 year). Medium and Long-term funds (> 1 year).
Instruments Treasury bills, Commercial paper, CD. Shares, Debentures, Bonds.
Risk Low risk. High risk.
Regulator Reserve Bank of India (RBI). SEBI.

Justify the following statements

1) Fixed capital stays in the business almost permanently.
Justification: Yes, this statement is correct.
  • Fixed capital is used to purchase fixed assets like land, building, machinery.
  • These assets are not sold frequently; they are used for production over a long period.
  • Therefore, the capital invested in them remains blocked in the business until the company winds up or the asset is scrapped.
2) Equity shareholders are real owners and controllers of company.
Justification: Yes, this statement is correct.
  • They provide permanent capital to the company.
  • They bear the ultimate risk of business (loss).
  • They have voting rights to appoint Directors and participate in management decisions.
  • Hence, they are the ultimate masters.
3) Bond holder is creditor of the company.
Justification: Yes, this statement is correct.
  • Bonds represent borrowed capital (loan) for the company.
  • Bond holders do not get ownership rights; they get a fixed interest.
  • They have a claim on assets for repayment before shareholders.
  • Their relationship is that of a lender (creditor) and borrower (company).
4) Equity share capital is risk capital.
Justification: Yes, this statement is correct.
  • Dividend is not guaranteed; it depends on profits.
  • If the company suffers losses, the capital value may erode.
  • In winding up, they are the last to be paid.
  • Since they bear the maximum financial risk, it is called risk capital.
5) The Board of Directors can refuse transfer of shares.
Justification: Yes, this statement is correct.
  • Though shares are transferable, the Board can refuse it under certain conditions prescribed in Articles.
  • Examples: If the transfer instrument is incomplete, stamp duty not paid, or if the transfer is against the company's interest.
  • A notice of refusal must be sent within 30 days.
6) A company has to create charge on its assets for issuing secured debentures.
Justification: Yes, this statement is correct.
  • Secured debentures mean debentures backed by security.
  • To provide security, the company must create a charge (mortgage/hypothecation) on its assets in favor of the Debenture Trustee.
  • This protects the interest of debenture holders in case of default.
7) All companies cannot accept deposits from public.
Justification: Yes, this statement is correct.
  • Private companies cannot accept deposits from the public; only from members/directors.
  • Only 'Eligible Public Companies' (having net worth > ₹100 Cr or turnover > ₹500 Cr) can accept deposits from the public.
  • Others can only accept from members.
8) Depository system results in reduced time, cost and efforts.
Justification: Yes, this statement is correct.
  • Transfers are electronic and instantaneous (reduced time).
  • No stamp duty on transfer, no courier charges (reduced cost).
  • No paperwork or physical handling of certificates (reduced effort).
9) Electronic holding of securities is safer than physical holding.
Justification: Yes, this statement is correct.
  • Physical certificates can be lost, stolen, torn, or mutilated.
  • Signatures can be forged in physical transfers.
  • In electronic (Demat) holding, these risks are eliminated as securities are held digitally by the Depository.
10) Dividend is paid out of profits of the company.
Justification: Yes, this statement is correct.
  • Dividend is a share of profit distributed to members.
  • Companies Act mandates that dividend can only be paid out of current year's profit (after depreciation) or accumulated free reserves.
  • It cannot be paid out of capital.
11) Interim dividend cannot be paid out of free reserves.
Justification: Yes, this statement is correct.
  • Interim dividend is declared between two AGMs.
  • It is paid out of the profits earned in the current financial year up to that quarter.
  • It cannot be paid from past accumulated reserves (Free Reserves), unlike Final Dividend.
12) Approval of members is not needed for Interim Dividend.
Justification: Yes, this statement is correct.
  • The power to declare Interim Dividend lies solely with the Board of Directors.
  • They declare it based on the profitability during the year.
  • Members' approval is required only for Final Dividend at the AGM.
13) Financial markets acts as link between investor and borrower.
Justification: Yes, this statement is correct.
  • Investors have surplus funds (savings).
  • Borrowers (Companies/Govt) need funds for projects.
  • Financial markets provide the platform/mechanism to channelize these savings into productive investments.
14) Capital market is useful for corporate sector.
Justification: Yes, this statement is correct.
  • Corporates need long-term funds for expansion, modernization, and new projects.
  • Capital market (Shares/Debentures) allows them to raise huge capital from the public.
  • It provides stability to their financial structure.
15) The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India.
Justification: Yes, this statement is correct.
  • SEBI was established to protect investor interests and regulate the market.
  • It frames rules for issuers, intermediaries, and stock exchanges.
  • It monitors compliance and penalizes malpractices like insider trading.
16) Stock exchanges work for the growth of the Indian economy.
Justification: Yes, this statement is correct.
  • They mobilize savings into productive industries.
  • They help in capital formation which leads to industrial growth.
  • They attract foreign investment (FII/FDI).
  • The Sensex/Nifty acts as a barometer of economic health.

Explain the following terms / concepts

  1. Fixed capital: Capital invested in fixed assets (land, machinery) intended for permanent use in business.
  2. Borrowed Capital: Capital raised by taking loans or issuing debentures/bonds. It is a debt.
  3. Overdraft: A credit facility given by banks to current account holders to withdraw more than their balance for a short period.
  4. Bonus shares: Free shares issued to existing equity shareholders out of accumulated profits.
  5. ESOS (Employee Stock Option Scheme): A scheme where employees are given an option to buy company shares at a future date at a pre-determined price.
  6. Rights Issue: Offering new shares to existing shareholders first, in proportion to their holding.
  7. Debenture certificate: A document issued by the company as evidence of holding debentures and debt.
  8. Credit rating: An evaluation of the creditworthiness (ability to repay debt) of a company by rating agencies (CRISIL, CARE).
  9. Secured Deposit: A deposit backed by a charge on tangible assets of the company.
  10. Correct information: The company secretary must provide factual and true information to members in correspondence.
  11. Dematerialization: Process of converting physical share certificates into electronic form.
  12. ISIN (International Securities Identification Number): A unique 12-digit alpha-numeric code that identifies a specific security (share/debenture).
  13. Interest: The price paid for the use of borrowed money.
  14. Interim Dividend: Dividend declared by the Board between two Annual General Meetings.
  15. Capital market: A market for long-term debt and equity capital.
  16. Working capital: Capital required for day-to-day operations (Current Assets - Current Liabilities).
  17. Owned capital: Capital provided by owners (Equity/Preference shares + Reserves).
  18. Transmission of shares: Transfer of title to shares by operation of law due to death, insolvency, etc.
  19. Allotment of shares: The act of appropriation (giving) of a certain number of shares to an applicant.
  20. ESPS (Employee Stock Purchase Scheme): Scheme where company offers shares to employees immediately (not future option) at a discounted price.
  21. Minimum subscription: The minimum amount (90% of issue) that must be raised for the IPO to be valid.
  22. Charge on assets: Creating a right on assets in favor of lenders (security) to recover dues in case of default.
  23. Eligible Public Company: A public company with Net Worth ≥ ₹100 Cr or Turnover ≥ ₹500 Cr, allowed to accept public deposits.
  24. Deposit Receipt: Acknowledgement issued by company proving receipt of money as deposit.
  25. Courtesy: Use of polite language in business correspondence to build goodwill.
  26. Rematerialization: Process of converting electronic holdings back into physical share certificates.
  27. Dividend: The portion of profit distributed to shareholders.
  28. Final Dividend: Dividend declared at the AGM for the completed financial year.
  29. Financial market: A marketplace where financial assets are created and traded.
  30. Stock exchange: An organized market for buying and selling existing securities.
HSC Board Exam Papers
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12th SP Chapter 10 Solution Dividend and Interest Maharashtra Board

12th SP Chapter 10 – Dividend and Interest

Q.1 A) Select the correct answer from the options given below and rewrite the statements.


1) Dividend is paid to _____.

a) Shareholder 

b) Debenture Holder 

c) Depositor


2) _____ is profit shared by a company with a shareholder.

a) Interest 

b) Rent 

c) Dividend


3) Dividend is recommended by _____.

a) Managing Director 

b) Secretary 

c) Board of Directors


4) Interim Dividend is declared by _____.

a) Board of Directors 

b) Debenture holders 

c) Depositors


5) Final Dividend is declared by _____.

a) Board of Directors 

b) Shareholders 

c) Depositors


6) Dividend cannot be declared out of _____.

a) Capital 

b) Profit 

c) Reserves


7) Dividend amount should be transferred in a separate Bank Account within _____ days of its declaration.

a) 5 

b) 15 

c) 50


8) Dividend should be paid within _____ days of its declaration.

a) 3 

b) 13 

c) 30


9) _____ holders get dividend from residual profits.

a) Equity share 

b) Preference share 

c) Debenture


10) Dividend is paid first to _____ shareholders.

a) Equity 

b) Preference 

c) Deferred


11) _____ warrant is a cheque containing dividend amount sent by company to the shareholders.

a) Dividend 

b) Share 

c) Interest


12) IEPF is created by _____ where unpaid dividend is transferred by company.

a) Central Govt. 

b) Company 

c) Shareholders


13) Payment of _____ Dividend must be authorized by the Articles of Association.

a) Interim 

b) Final 

c) Bonus


14) _____ is a return paid to creditors by the company.

a) Dividend 

b) Interest 

c) Rent


15) _____ is not linked to profits of the company.

a) Dividend 

b) Interest 

c) Bonus


Q.1 B) Match the pairs.

Group A

Group B

a) Dividend

1) Equity Shareholders

b) Interest

2) Appropriation of profit.

c) Interim Dividend

3) Recommendation of Secretary.

d) Final Dividend

4) Registrar of company.

e) Fluctuating Rate of Dividend

5) Obligatory to pay.


6) Decided and Declared by the Board of Directors.


7) Decided by Board; declared by Members.


8) Decided by the President of India.


9) Company not allowed to pay.


10) Declared by Govt. of India

Answers.  

a. 2) Appropriation of profit.

b. 5) Obligatory to pay.

c. 6) Decided and Declared by the Board of Directors.

d. 7) Decided by Board; declared by Members.

e. 1) Equity Shareholders


Group A

Group B

a) Dividend

1) Must inform stock exchange about Dividend

declaration

b) Interest

2) Creditors

c) IEPF

3) Registered Shareholders.

d) Unpaid Dividend Account

4) Balance of unpaid Dividend Transferred here.

e) Listed Company

5) Unregistered company.


6) Non-listed company.


7) Unpaid/Unclaimed Dividend.


8) Balance of unpaid Bonus transferred here.


9) Must inform Government about Dividend

declaration.


10) General Public.


Answers.

a. 3) Registered Shareholders.

b. 2) Creditors

c. 4) Balance of unpaid Dividend Transferred here.

d. 7) Unpaid/Unclaimed Dividend.

e. 1) Must inform stock exchange about Dividend declaration


Q.1 C) Write a word or a term or a phrase which can substitute each of the following statements.


1) The return on investment paid to the shareholders of the company.

Ans: Dividend


2) The meeting where final dividend is declared.

Ans: Annual General Meeting


3) The company which has to intimate stock exchange about declaration of dividend.

Ans: Listed Company


4) The shareholders who get dividend at a fixed rate.

Ans: Preference Shareholders


5) The shareholders who get dividend at a fluctuating rate.

Ans: Equity Shareholders 


6) Request by shareholder in prescribed form for payment of dividend into shareholders bank account. 

Ans: Dividend Mandate


7) Number of days within which payment of dividend be completed b company, after its declaration.

Ans: 30 days 


8) Dividend declared between two AGMs.

Ans: Interim Dividend


9) Dividend decided and declared by the Board.

Ans: Interim Dividend 


10) The return paid to the creditors by the company.

Ans: Interest 


Q.1 D) State whether the following statements are true or false.


1) Dividend is paid to registered shareholders of the company.

Ans: True


2) Dividend is decided by the Board.

Ans: True


3) Dividend is decided by the shareholders.

Ans: False


4) Dividend once declared cannot be revoked.

Ans: True


5) Dividends cannot be paid out of capital.

Ans: True


6) Shareholders decide about the rate and amount of profit to be given as dividend.

Ans: False


7) All categories of shareholders get a fixed rate dividend.

Ans: False


8) IEPF is the fund created by company.

Ans: False


9) Interest is a liability for company.

Ans: True


10) Interest is paid to shareholders of company.

Ans: False


Q.1 E) Find the odd one.

  1. Final Dividend, Interim Dividend, Interest.

  2. Out of Capital, Out of free reserve, Out of money given by the government.

  3. Dividend Account, Dividend Mandate, unpaid/unclaimed dividend Account.

  4. Dividend warrant, Dividend Mandate, Cheque.


Q.1 F) Complete the sentences.

1) Word dividend is derived from the Latin term Dividendum .

2) Dividend is paid to Registered Shareholders.

3) Dividend can be declared only on the recommendation of Board of Director.

4) Dividend must be paid in Cash.

5) The meeting at which the final dividend is approved is Annual General Meeting.

6) Dividend cannot be paid out of Capital.

7) Interim dividend is decided and declared by the Board of Directors.

8) Pre Decided and a fixed rate of dividend is paid to Preference Shareholders.

9) Payment of dividend must be completed within 30 Days.

10) Payment of Interim Dividend needs to be authorized by Articles of Association.

11) The obligator payment made by the company to its creditors is called Interest.


Q.1 G) Select the correct option from the bracket.

I)

Group ‘A’

Group ‘B’

a) Dividendum

1) ____________

b) Interest

2) ____________

c) ____________

3) Final Dividend

d) ____________

4) Interim Dividend

e) Govt. Fund

5) ____________


(Creditors, IEPF, Latin term, At Board Meeting, At AGM)


Answer: 

Group ‘A’

Group ‘B’

a) Dividendum

1) Latin Term

b) Interest

2) Creditors

c) At AGM

3) Final Dividend

d) At Board Meeting

4) Interim Dividend

e) Govt. Fund

5) IEPF


II) 

Group ‘A’

Group ‘B’

a) Preference Shares

1) ____________

b) Equity Shares

2) ____________

c) Deposit holders

3) ____________

d) ____________

4) Payment of Dividend

e) ____________

5) Dividend Declared but not paid/claimed

(Unclaimed/Unpaid Dividend, Fixed rate Dividend, Dividend at a Fluctuating Rate, Interest, Within 30 days)

Answer: 

Group ‘A’

Group ‘B’

a) Preference Shares

1) Fixed rate dividend

b) Equity Shares

2) Dividend at a fluctuating rate

c) Deposit holders

3) Interest

d) Within 30 days

4) Payment of Dividend

e) Unclaimed/Unpaid Dividend

5) Dividend Declared but not paid/claimed


Q.1 H) Answer in one sentence.


1) What is Dividend?

Answer: It is that part of the profits of the company which is distributed amongst its shareholders. The dividend is a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’


2) Who has the right to recommend Dividend?

Answer: Board of Directors has a right to recommend dividend.


3) What is the final Dividend?

Answer: Final Dividend is declared and paid after the close of the financial year.


4) What is an Interim Dividend?

Answer: The Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend.


5) Who declares an Interim Dividend?

Answer: Board of Directors declares Interim Dividend.


6) Which shares get dividend at a fixed rate?

Answer: Preference Shares get dividend at a fixed rate.


7) Which shares get dividend at a fluctuating rate?

Answer: Equity Share get dividend at a fluctuating rate.


8) At which Meeting Interim Dividend is decided and declared?

Answer: Interim Dividend is decided and declared at the meeting of the Board of Directors.


9) What is Interest?

Answer: In financial terms, it is a payment made for using money of another. i.e. Borrower takes money from the lender.


10) State the time within which Unpaid Dividend be transferred to unpaid dividend Account?

Answer: This transfer should be within 7 days of the end of 30 days within which payment was to be made. In other words, this transfer should happen within 37 days from the declaration of dividend.


Q.1 I) Correct the underlined word/s and rewrite the following sentences.


1) Dividend is paid to creditors.

Answer: Registered Shareholders. 


2) Interest is paid to shareholders.

Answer: Creditors.


3) Final Dividend is paid between two AGMs.

Answer: Interim Dividend


4) Special Resolution must be passed to declare Final Dividend.

Answer: Ordinary Resolution 


5) Dividend must be paid within 60 days of its declaration.

Answer: 30 Days


6) The Dividend to be paid should be transferred to Dividend A/c within 30 daysof its declaration.

Answer: 5 days


7) Dividend is an obligation to be paid by a company every year.

Answer: Interest


8) Preference shareholders are given the last priority in payment of dividend.

Answer: Equity 


9) Preference shareholders get dividend from residual profits.

Answer: Equity


10) Dividend is payable every year irrespective of profits made by company.

Answer: Interest


Q.1 J) Arrange in proper order


1)

a) Recommendation of Dividend.

b) Checking sufficiency of profits

c) Board Meeting

Answer: (b) Checking sufficiency of profits (c) Board Meeting (a) Recommendation of Dividend


2) 

a) Transfer to Dividend Account

b) Transfer to IEPF

c) Transfer to Unpaid Dividend Account

Answer: (a) Transfer to Dividend Account (c) Transfer to Unpaid Dividend Account (b) Transfer to IEPF


3)

a) Closure of Register of Members.

b) Intimate Stock Exchange of Board Meeting.

c) Intimate Stock Exchange of declaration of dividend.

Answer: (b) Intimate Stock Exchange of Board Meeting. (c) Intimate Stock Exchange of declaration of dividend. (a) Closure of Register of Members.


4)

a) Decision on Rate of Dividend

b) Transfer to IEPF

c) Payment of Dividend.

Answer: (a) Decision on Rate of Dividend (c) Payment of Dividend (b) Transfer to IEPF


5)

a) Payment of Interim Dividend

b) Board meeting deciding and declaring Interim Dividend.

c) Authorization of Articles of Association.

Answer: (c) Authorization of Articles of Association. (c) Board meeting deciding and declaring Interim Dividend (a) Payment of Interim Dividend


Q.2 Explain the following terms/concepts.


1) Profit

Answer: a) Profit is the difference between revenues and expenses for a given period.

b) Profit making and its maximization is the prime aim of all business organizations including a Joint Stock Company.

c) The owners of company viz. the shareholders expect return on their investment in the form of profits of the company.


2) Dividend

Answer: a) Dividend is the return payable to the shareholders of the company for their investment in the share capital.

b) It is that part of the profits of the company which is distributed amongst its shareholders.

c) Dividend is ‘a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’


3) Interest

Answer: a) It is the return payable to the creditors of the company viz. Debenture holder / Deposit holders for the loan given by them to the company.

b) In financial terms, it is a payment made for using money of another. i.e. Borrower takes money from the lender.

c) So interest is the cost of renting money, for the borrower and it is the income from lending money for the lender.


4) Final Dividend

Answer: a) It is declared and paid after the close of the financial year.

b) It is decided and recommended by the Board of Directors. It is declared by the shareholders in the AGM.

c) It is declared from different sources like; current year’s profits, free reserves, capital profits, Money provided by Govt. for dividend, etc.


5) Interim Dividend

Answer: a) It is declared and paid between two AGMs of an accounting year.

b) It is decided and declared by the Board of Directors in the Board Meeting.

c) It is declared out of profits of the current accounting year.


6) Unpaid Dividend

Answer: a) The dividend declared by company but has not been paid by it or claimed by a shareholder within 30 days of its declaration is termed as Unpaid and Unclaimed Dividend.

b) Total amount of dividend which remains unpaid/unclaimed should be transferred to ‘Unpaid Dividend Account’ opened in a scheduled Bank by the company.

c) This transfer should be within 7 days of the end of 30 days within which payment was to be made. In other words, this transfer should happen within 37 days from the declaration of dividend.


7) Unpaid Dividend Account

Answer: a) Total amount of dividend which remains unpaid/unclaimed should be transferred to ‘Unpaid Dividend Account’ opened in a scheduled Bank by the company.

b) This transfer should be within 7 days of the end of 30 days within which payment was to be made. In other words, this transfer should happen within 37 days from the declaration of dividend.

c) Within 90 (Ninet) days of transfer of amount in the ‘Unpaid Dividend Account’, the company is required to put on its website or any other website as approved by the Central Government, a statement which shows names, last known addresses and unpaid amount payable to each shareholder.


8) Dividend Mandate

Answer: a) A shareholder may wish to get dividend credited directly in the bank account.

b) Shareholder is required to send a request to the company in the prescribed form called. ‘Dividend Mandate’.

c) Dividend mandate authorizes the company to pay dividend directly to shareholders’ bankers.


9) IEPF

Answer: a) IEPF stands for Investors Education and Protection Fund. IEPF has been set up b the Central Government, since 2001. Examples of some amounts to be transferred to IEPF are – matured deposits with companies, matured debentures with companies, etc.

b) Any amount in the unpaid Dividend Account of a company that remains unpaid/ unclaimed for a period of 7 years from the date of such a transfer shall be, transferred b the company to ‘Investors Education and Protection Fund’ (IEPF).

c) The claimant of money will have to follow the procedures and submit necessary documents to get claim from IEPF along with a statement in the prescribed form which gives details of such transfers.


10) Rate of Dividend

Answer: a) Dividend rate, expressed as a percentage or yield, is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

b) The Board of Directors in Board Meeting decide the rate of dividend. The rate of final dividend is approved by shareholders in a shareholder’s meeting.

c) The rate of dividend for Equity shareholders are fluctuating. and Preference shareholders get dividend ate fixed rate.


Q.3 Study the following case/situation and express your opinion.


1) LMN Co Limited decides to declare dividend for the financial year 2018-19 in which it has earned profits less than their expectations :


a) Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?

Answer: Yes, Board is right in recommending a dividend of Rs. 5/- per share out of free reserves as a dividend can be paid out of free reserve of the company.


b) Can Board declare the dividend though it is not approved by AGM?

Answer: No, Board can not declare the dividend though it is not approved by AGM. Because It is decided and recommended by the Board of Directors. It is declared by the shareholders in the AGM.


c) Can the Board give dividend in the form of gifts?

Answer: No, Board can not give dividend in the form of gifts. Because dividend must be paid in cash and not in kind.


2) ABC Co. Ltd. decides to pay Interim Dividend:


a) Can it be paid out of free reserves?

Answer: No, Interim dividend cannot be paid out of any free reserves.


b) Is the Board right in declaring the same at the Board Meeting?

Answer: Yes, the Board is right in declaring the interim dividend at the Board Meeting.


c) Can the company distribute the same within 30 days of its declaration?

Answer: Yes, the company should distribute interim dividend within 30 days of its declaration.


3) RAJ Company limited decides to pay Interim Dividend:


a) Is the Board justified to decide Interim Dividend of Rs 5/per share even though profits till date are insufficient?

Answer: No, the Board is not justified to decide Interim Dividend of Rs 5/per share if the profits till date are insufficient. This is because the interim dividend is declared out of profits.


b) Can the Board declare it out of Free Reserves?

Answer: No, the Board cannot declare it out of Free Reserves.


c) Can the Board declare it out of Capital?

Answer: No, the Board cannot declare it out of Capital. It is declared out of profits of the current accounting year.


4) DIAMOND Co. Ltd. is considering to declare Interim Dividend.


a) In how many days of declaration it should transfer the funds to Dividend Account?

Answer: The amount to be given as Interim Dividend must be credited in a separate Bank account in a scheduled bank within 5 (five) days of its declaration.


b) In how many days it must pay it to shareholders?

Answer: Interim Dividend should be paid within 30 days of its declaration.


c) In how many days of declaration it must transfer the funds to the Unpaid Dividend A/C? 

Answer: Unpaid / Unclaimed Interim Dividend should be transferred to ‘Unpaid Dividend Account within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.


5) The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of Rs 15/- per share to be paid in cash.


a) Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?

Answer: Yes, it is justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders. Preference shareholders are entitled to the dividend before it is paid to the equity shareholders as per the terms of issue of the preference shares.


b) Is the AGM required to approve the same?

Answer: Yes, AGM is required to approve the dividend. The dividend is approved by shareholders by passing an Ordinary Resolution at the Annual General Meeting.


c) Can the company pay dividend in cash?

Answer: Yes, the company can pay dividend in cash. The dividend may be paid by cheque or warrant or by any electronic mode to the shareholder.


6) GOLD Co. Ltd. declares a dividend of Rs 10/- per share for F.Y. 2018-19.


a) Is company under default if dividend was not paid within 30 days of its declaration?

Answer: Yes, the company is under default if dividend was not paid within 30 days of its declaration.


b) Is company right in transferring the unpaid dividend to its Debenture Reserve Accounts? 

Answer: No, the company is not right in transferring the unpaid dividend to its Debenture Reserve Accounts. Total amount of dividend which remains unpaid/unclaimed should be transferred to ‘Unpaid Dividend Account’.


c) Does the company have to transfer the amount of unpaid dividend to IEPF after 30 days? 

Answer: No. Any amount in the unpaid Dividend Account of a company that remains unpaid/unclaimed for a period of 7 (seven) years from the date of such a transfer shall be, transferred by the company to ‘Investors Education and Protection Fund’ (IEPF).


Q.4 Distinguish between the following.


1) Final Dividend and Interim Dividend.

Points

Final Dividend

Interim Dividend

1. Meaning

It is declared and paid after the close of the financial year.

It is declared and paid between two AGMs of an accounting year.

2. Who Declares

It is decided and recommended by the Board of Directors. It is declared by the shareholders in the AGM.

It is decided and declared by the Board of Directors in the Board Meeting.

3. Authorization

It’s declaration does not need authorization by Articles of Association.

It can be declared only if Articles of Association permits its declaration.

4. When Declared

It is declared at the Annual General Meeting of the company.

It is declared between two Annual General Meetings of the company.

5. Rate of Dividend

Rate of final dividend is always higher than Interim Dividend.

Rate of Interim dividend is lower than final dividend.

6. Source

It is declared from different sources like; current year’s profits, free reserves, capital profits, Money provided by Govt. for dividend, etc.

It is declared out of profits of the current accounting year.

7. Accounting Aspect

It is declared only after the accounts of the year are prepared and finalized.

It is declared before the preparation of the final accounts of the company.


2) Dividend and Interest


Points

Dividend

Interest

1. Meaning

The dividend is the return payable to the shareholders of the company for their investment in the share capital.

It is the return payable to the creditors of the company viz. Debenture holder/Deposit holders for the loan given by them to the company

2. Given to whom

It is paid to the member i.e. the owners of the company.

It is paid to the creditor of the company.

3. Obligation

It is to be paid only when the company has made profits. Therefore no obligation/compulsion to pay dividends.

It is not linked to the profits of the company. Payment of interest is an obligation and is to be paid by the company compulsorily.

4. When Payable

It is payable when a company earns sufficient profit in a year after fulfilling all obligations.

It is payable every year irrespective of the profits of the company.

5. Rate

It is paid at a fluctuating rate to the equity shareholders since it is linked to the profits of the company.

The rate of interest is fixed and predetermined at the time of issue of the security

6. Resolution

Payment of Final Dividend requires a Board resolution and an ordinary resolution at the AGM while Interim Dividend can be paid by passing only a Board Resolution.

Payment of interest does not require the passing of a resolution at any meeting.

7. Accounting Treatment/Aspect

A dividend is an appropriation of profit.

Interest is a charge on profit.



Q.5 Answer in brief.


1) State any four points to be kept in mind by a Listed Company with respect to Dividend.

Answer: Where a company’s shares are listed on the Stock Exchanges, additional requirements with respect to Listings agreements must be followed like :

  • Notify stock exchange where company’s securities are listed at least 2 days in advance of the date of meeting of the Board at which recommendation of final dividend is to be considered.

  • Intimate Stock Exchange immediately about declaration of dividend after the Board Meeting.

  • Give notice of Book closure to the stock exchange at least 7 working days before the closure.

  • Close the Register of members and the Transfer Register.

  • It must use electronic mode of payment such as Electronic Clearing Services (ECS) or National Electronic Fund Transfer (NEFT); as approved b the Reserve Bank of India (RBI).

  • Listed company has to express the dividend on per share basis only.


2) Discuss any four features of dividend.

Answer: Following are the features of Dividend:

  • It is the portion of profits of the company paid to its shareholders.

  • It is payable out of the profits of the company.

  • Dividend is an unconditional payment made by the company.

  • Company can pay dividend only to the shareholders viz. (1) Equity (2) Preference.

  • If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern rights of shareholders about receiving the dividend.

  • Dividend cannot be declared out of capital.

  • Dividend can be declared only on recommendation of the Board of Directors.

  • Dividend, as recommended by Board of Directors, is approved and declared by a resolution passed at the Annual General Meeting by the shareholders.

  • Dividend for any previous year cannot be declared once that year’s Annual Account has been approved in the AGM.

  • Dividend once approved and declared by shareholders creates a debt. It cannot be revoked.

  • Dividend includes Interim Dividend.

  • Dividend must be paid in cash and not in kind.

  • Dividend is to be paid on paid-up value of shares.

  • Dividend cannot be paid on calls paid in advance.


3) Explain the features of Interest.

Answer: Following are the features of interest.

  • Interest is the price paid for the productive services rendered by capital.

  • It is directly related to risk. Higher the risk, higher is the interest.

  • The rate of Interest is expressed as the annual percentage of the Principal.

  • The rate of interest is determined by various factors like money supply, fiscal policy, volume of borrowings, rate of inflation etc.

  • Interest is a charge against the profit of the company. Even if a company makes no profit, interest should be paid.

  • It is payable at a fixed and generally predetermined rate.


Q.6 Justify the following statements.


1) Dividend is paid out of profits of the company.

Answer:

a) Under a depository system securities are held in electronic form. 

b) All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.

c) It is the safest and secure way of holding securities.

d) It offers scope for paperless trading by using state-of-art technology.

e) It leads to the elimination of storage and handling of certificates.

f) Therefore, Electronic holding of securities is safer than physical holding.


2) Interim dividend cannot be paid out of free reserves.

Answer: 

a) Under a depository system securities are held in electronic form.

b) The transfer and settlement of securities done electronically.

c) Efforts in filling transfer forms and lodging the documents is eliminated.

d) Also the stamp duty levied on the transfer of physical shares is not applicable.

e) Processing time in the transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily a long time.

f) Hence, Depository provides easy and quicker transfer of shares.


3) AGM is crucial for Final Dividend.

Answer: 

a) Under a depository system securities are held in electronic form.

b) The transfer and settlement of securities done electronically.

c) Processing time in the transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily a long time.

d) Costs, efforts and time involved in printing and distribution of certificates in cases of new issues, bonus, transfers, etc. is saved.

e) Efforts in filling transfer forms and lodging the documents is eliminated.

f) Also the stamp duty levied on the transfer of physical shares is not applicable.

g) Hence, the Depository system results in reduced time, cost and efforts.


4) Listed Company has to follow additional guidelines on dividend matters.

Answer: 

a) Banking system keeps the money safe. Similarly, Depository system keeps the securities safe.

b) In bank funds are held in accounts having unique numbers. Similarly, Securities are held in accounts having unique IDs.

c) Like bank, There is no physical handling of securities during allotments, transfers, etc.

d) In banking system The transfer of funds between accounts is done. Similarly, in the Depository system, The transfer of securities between accounts is done.

e) Hence, Depository system is very similar to the Banking system.


5) Equity shares get last priority in dividend.

Answer:

  1. It is the agent of Depositor. It is an intermediary appointed by Depository.

  2. DP is registered under the SEBI A ct. It enjoys rights and obligations as specified under SEBI (Depositor and Participants) Regulations of 1996.

  3. DP acts as a link between Depositor and the investor.

  4. It directly deals with customers. It sends statement of accounts periodically.

  5. It functions like a securities bank. The DP maintains account of securities of each investor.

  6. It facilitates Dematerialisation.

  7. It credits securities in the event of Rights Issue, Bonus Issue, etc.

  8. It handles instant transfers of pa-outs like dividend, interest, etc.

  9. It settles trade electronically.

  10. Hence,DP is an important constituent of Depository system.


6) Unpaid dividend cannot be used by the company.

Answer: 

a) Depository is an organization like the Central Bank where securities are held in electronic form at the investor’s request.

b) Depository system convert physical certificates into electronic and electronic into physical.

c) Dematerialization is a process whereby a client can get physical certificates converted into electronic mode.

d) Rematerialization is the process whereby a client can get his electronic holdings of securities converted into physical certificates.

e) All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.

f) Hence, Depository system allows both: Physical to electronic and electronic to physical conversion.


7) Interest is a liability/obligation of the company.

Answer:

1) It is a code that uniquely identifies a specific securities issue.

2) ISINs in any country are allotted by that country’s NNA (National Numbering Agency)

3) ISIN is a standard numbering system that is accepted globally.

4) In India, issuing ISIN to securities is assigned by SEBI to NSDL (for demated shares) SEBI works as NNA in India.

5) For Government securities, allotment of ISIN is done by the RBI.

6) ISIN consists of a 12 (Twelve) digit alpha-numeric code which is divided in 3 (Three) parts.

7) The company has to apply for ISIN for its securities with documents like prospectus.

8) Hence, ISIN is necessary component of Demat.



8) Approval of members is not needed for Interim Dividend.

Answer:

1) It is a code that uniquely identifies a specific securities issue.

2) ISINs in any country are allotted by that country’s NNA (National Numbering Agency)

3) ISIN is a standard numbering system that is accepted globally.

4) In India, issuing ISIN to securities is assigned by SEBI to NSDL (for demated shares) SEBI works as NNA in India.

5) For Government securities, allotment of ISIN is done by the RBI.

6) ISIN consists of a 12 (Twelve) digit alpha-numeric code which is divided in 3 (Three) parts.

7) The company has to apply for ISIN for its securities with documents like prospectus.

8) Hence, ISIN is necessary component of Demat.


Q.7 Answer the following


1) Define Dividend and explain its features.

Answer: 

The term dividend is derived from the Latin word ‘Dividendum’ which means ‘that which is to be divided’.

It is that part of the profits of the company which is distributed amongst its shareholders. Dividend is ‘a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’

Definition:

The Institute of Chartered Accountants of India has defined Dividend as, “a distribution to shareholders out of profits or reserves available for this purpose.”

Following are the features of Dividend

  • It is the portion of profits of the company paid to its shareholders.

  • It is payable out of the profits of the company.

  • Dividend is an unconditional payment made by the company.

  • Company can pay dividend only to the shareholders viz. (1) Equity (2) Preference.

  • If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern rights of shareholders about receiving the dividend.

  • Dividend cannot be declared out of capital.

  • Dividend can be declared only on recommendation of the Board of Directors.

  • Dividend as recommended by Board of Directors is approved and declared by a resolution passed at the Annual General Meeting by the shareholders.

  • Dividend for any previous year cannot be declared once that year’s Annual Account has been approved in the AGM.

  • Dividend once approved and declared by shareholders creates a debt. It cannot be revoked.

  • Dividend includes Interim Dividend.

  • Dividend must be paid in cash and not in kind.

  • Dividend is to be paid on paid-up value of shares.

  • Dividend cannot be paid on calls paid in advance.


2) What is Interest? Explain its features.

Answer: 

In financial terms, it is a payment made for using money of another. i.e. Borrower takes money from the lender.

So interest is the cost of renting money, for the borrower and it is the income from lending money for the lender.

It is the return payable to the creditors of the company viz. Debenture holder / Deposit holders for the loan given by them to the company.

Following are the features of Interest:

1) Interest is the price paid for the productive services rendered by capital.

2) It is directly related to risk. Higher the risk, higher is the interest.

3) Rate of Interest is expressed as annual percentage of Principal.

4) Rate of interest is determined b various factors like money supply, fiscal policy, volume of borrowings, rate of inflation etc.

5) Interest is a charge against the profit of the company. Even if company makes no profit, interest should be paid.

6) It is payable at a fixed and generally pre-determined rate.

3) Discuss legal provisions for declaration of dividend.

Answer: 

The dividend is that part of the profits of the company which is distributed amongst its shareholders. Dividend is a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’

Legal Provisions for declaration of Dividend

1) Board Meeting: 

Dividend can be declared only on recommendation of Board of Directors. Board Meeting should be called to pass resolution about :

a) Rate of Dividend and amount of Dividend to be paid

b) Book closure date for dividend

c) Date of Annual General Meeting.

d) Bank with which a separate account should be opened to remit the dividend amount.

2) Shareholder’s Approval:

a) Dividend is approved by shareholders by passing an Ordinary Resolution at the Annual General Meeting.

b) Shareholders can declare a lower rate of dividend than what is recommended by the Board but not higher than that.

c) Once the dividend is declared at the General meeting it cannot be revoked. The company is not permitted to declare it second time in that year.


3) Separate Bank Account 

The company must deposit the dividend amount in a separate bank account opened in a scheduled bank called as Dividend Account within 5 (Five) days of its declaration.

Listed company: Where a company’s shares are listed on the Stock Exchanges, additional requirements with respect to Listings agreements must be followed like.

a) Notify stock exchange where company’s securities are listed at least 2(two) days in advance of the date of meeting of the Board at which recommendation of final dividend is to be considered.

b) Intimate Stock Exchange immediately about declaration of dividend after the Board Meeting.

c) Give notice of Book closure to the stock exchange at least 7(seven) working days before the closure.

d) Close the Register of members and the Transfer Register.

e) It must use electronic mode of payment such as Electronic Clearing Services (ECS) or National Electronic Fund Transfer (NEFT); as approved by the Reserve Bank of India (RBI)

f) Listed company has to express the dividend on per share basis only.


4) Prohibition to Pay Dividend

a) A company that has failed to repay deposit or interest on deposit cannot declare any dividend on its equity shares.

b) No dividend can be declared if company has defaulted on :

1) Redemption of Debentures or payment of interest, Redemption of Preference shares, payment of interest to financial institution, etc.

4) Explain Interim Dividend.

Answer: 

Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend. Interim dividend is paid in the middle of the accounting year i.e. before the finalization of annual accounts for the year. Opinion of the company’s Auditors should be taken before declaring Interim Dividend.

Features of Interim Dividend

  • The Board of Directors has the power to declare Interim Dividend.

  • Interim Dividend is only a payment on account of the whole dividend for the year.

  • Company should provide depreciation for the entire year and not proportionately for a part of the year before declaring Interim Dividend.

  • Interim dividend cannot be paid out of any reserves.

  • Articles of Association of the company must authorize the Board of Directors to declare Interim Dividend.

  • The Board Meeting has to pass a resolution for declaring the Interim Dividend.

  • The amount to be given as Interim Dividend must be credited in a separate Bank account in a scheduled bank within 5 days of its declaration.

  • Interim Dividend should be paid within 30 days of its declaration.

  • Unpaid / Unclaimed Interim Dividend should be transferred to ‘Unpaid Dividend Account within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.

  • Any amount remaining unpaid/unclaimed in the ‘Unpaid Dividend A/c’ for 7 years should be transferred to IEPF.



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