Maharashtra HSC Secretarial Practice cheat sheet

Corporate finance deals with three decisions: investment (capital budgeting), financing (capital structure) and dividend (profit distribution).

Capital structure is the mix of long-term sources: equity share capital, preference share capital, reserves and surplus, and long-term debt (debentures, term loans).

Financial structure is broader than capital structure: it includes current liabilities and short-term borrowings as well as long-term sources.

Trading on equity (favourable financial leverage) raises EPS when return on investment exceeds the fixed cost of debt/preference capital; it turns adverse when ROI falls below that cost.

Capital gearing = fixed-interest/fixed-dividend bearing funds divided by equity shareholders' funds. High gearing means high fixed obligation and high financial risk.

Debt is cheaper than equity because interest is a tax-deductible charge and lenders bear lower risk, but it raises financial risk and fixed commitments.

Optimal capital structure minimises weighted average cost of capital while balancing risk; factors include cost, risk, control, flexibility, flotation cost and cash-flow stability.

Over-capitalisation means capital employed exceeds what is justified by earnings; under-capitalisation is the reverse. Neither is simply about the amount of money raised.

Owned sources: equity share capital and retained earnings (ploughing back of profit); borrowed sources: debentures, bonds, term loans, public deposits and trade credit.

Equity shareholders are owners: they bear residual risk, receive dividends only when declared, and have voting rights; equity has no fixed maturity or fixed return.

Preference shares carry a fixed dividend rate, priority in dividend and repayment, usually limited voting rights, and may be cumulative, participating, convertible or redeemable.

Debentures are acknowledgement of debt, carry fixed interest payable whether or not profit is earned, and are usually secured by a charge on company assets.

Company may issue secured or unsecured, convertible or non-convertible, redeemable or irredeemable debentures; irredeemable debentures are no longer permitted in the Indian regulatory framework.

Public deposits are unsecured short/medium-term borrowings from the public for up to 36 months, subject to limits and the Companies (Acceptance of Deposits) Rules.

Retained earnings are an internal, cost-free-of-flotation source but are limited by profit levels and dividend policy; they belong to equity shareholders.

Lease financing and hire purchase provide asset use without immediate full payment; trade credit and bank overdraft meet short-term working capital needs.

Methods of issue: public issue (IPO/FPO), rights issue, bonus issue, private placement and preferential allotment.

Rights issue: shares offered first to existing equity holders in proportion to holding, usually at a discount; offer must remain open at least 7 days (15 days where listed-company rules apply).

Bonus issue: free shares issued from capitalised reserves/profits to existing shareholders in a ratio; no consideration is received and the paid-up capital increases.

Private placement: offer to a select group of not more than 200 persons in a financial year, excluding qualified institutional buyers and employees under ESOS.

Book building is price discovery through a price band; the cut-off price and allotment are determined after bids close, whereas in a fixed-price issue the price is stated upfront.

Application money must be kept in a separate bank account and cannot be utilised until allotment; minimum subscription must be received before allotment.

Allotment must be made within 30 days of closure of the issue (or such period as prescribed); if not, application money must be refunded within the prescribed time with interest for delay.

Calls on shares must follow the articles and board resolution, give at least 14 days' notice, and be made in instalments; calls cannot exceed the face value overall.

A depository holds securities in electronic form and transfers them by book entry; in India the two depositories are NSDL and CDSL, regulated by SEBI.

A Depository Participant (DP) is the investor's link to the depository, like a bank branch; the investor opens a demat account with a DP.

Dematerialisation converts physical certificates into electronic form; rematerialisation converts electronic holdings back into physical certificates.

ISIN (International Securities Identification Number) uniquely identifies each security and is required for demat holdings and electronic trading.

Benefits of demat: no risk of loss, theft, forgery or mutilation of certificates; faster transfer; lower stamp duty and no odd-lot problem.

Transfer of demat securities is effected by delivery instruction slip (DIS) given to the DP; the depository is the registered owner while the investor is the beneficial owner.

SEBI has mandated demat settlement for listed securities; physical transfer deeds are no longer accepted for transfer of listed shares.

Pledge and hypothecation of demat securities can be created electronically through the DP, avoiding physical certificate movement.

Statutory notices (board/general meeting, dividend, allotment, calls) must state the authority, purpose, date, time, place and be signed by the authorised officer.

Notice of a general meeting must be given at least 21 clear days before the meeting; shorter notice requires consent of members as prescribed.

A notice of dividend should state the rate, record date or book closure, and the manner and place of payment.

Letters to debenture holders cover interest payment, redemption, conversion, transfer and creation of charge; they should quote the debenture folio/DP ID and distinctive numbers.

Share transfer correspondence must be answered within the statutory time; refusal must be communicated with reasons within the prescribed period.

All correspondence should carry the company's registered office, CIN and the date of the letter; registered post or speed post with acknowledgement is used where proof of service matters.

Registers and returns (register of members, debenture holders, charges) are open to inspection by members on request under the Companies Act.

Electronic communication (email, website upload) is permitted for notices and documents where the member has registered an email address or consented.

Dividend is declared by the board and, where required, approved by members at the AGM; it is paid out of current profits, accumulated profits or money provided by the government/statutory bodies.

Final dividend is recommended by the board and declared by members; interim dividend is declared by the board between two AGMs.

Dividend must be paid within 30 days of declaration; unpaid or unclaimed dividend is transferred to the Unpaid Dividend Account within 7 days of the expiry of that period.

Unclaimed dividend remaining unpaid for 7 years is transferred to the Investor Education and Protection Fund (IEPF) along with the underlying shares.

No dividend can be paid out of capital; dividend on equity is paid only after preference dividend, including arrears for cumulative preference shares.

Interest on debentures is a charge against profit and is payable at the fixed rate irrespective of profits; it must be paid on the due date.

Interest on debentures is subject to tax deducted at source where the threshold is crossed; the company must issue TDS certificates and deposit the tax within statutory timelines.

Dividend distribution tax on companies has been abolished; dividend is now taxable in the hands of the recipient as per the applicable regime.

Primary market issues new securities; secondary market (stock exchange) trades existing securities. Both are regulated by SEBI.

Money market deals in short-term instruments (treasury bills, commercial paper, certificates of deposit, call money) with maturity up to one year; capital market deals in long-term securities.

Stock exchange functions: liquidity, price discovery, safety of transactions, spreading risk and providing a market for corporate securities.

Sensex (BSE, 30 stocks) and Nifty (NSE, 50 stocks) are benchmark indices; they are computed using free-float market capitalisation.

SEBI regulates intermediaries (brokers, merchant bankers, registrars, depositories) and protects investors through disclosure, listing obligations and insider trading rules.

A stock broker must be registered with SEBI and a member of a recognised stock exchange; trading is screen-based and settlement is on a T+1 basis in Indian equities.

Listing means admission of securities to trading on an exchange; it requires a listing agreement and continuous disclosure obligations.

Speculation vs investment: investment seeks long-term return through ownership; speculation seeks short-term gain from price movement with higher risk.

Company Secretary is a key managerial personnel (KMP) under the Companies Act; duties include compliance, board support, records and shareholder communication.

Board meetings must be held at least once every 120 days, with a maximum gap of 120 days between two meetings; at least four board meetings a year.

Annual General Meeting (AGM) must be held within 6 months of the close of the financial year and within 15 months of the previous AGM; first AGM within 9 months of incorporation.

Extraordinary General Meeting (EGM) is called to transact urgent business that cannot wait for the AGM; requisition by members requires support of at least 10% of paid-up capital or voting power.

Quorum for a general meeting is 5 members (up to 1,000), 15 (1,001-5,000) and 30 (above 5,000); for a board meeting it is one-third of total strength or two directors, whichever is higher.

Minutes of meetings must be recorded within 30 days of the meeting, entered in the minutes book and signed by the chairman.

Notice, agenda, proxy, quorum, voting (show of hands, poll, e-voting) and resolutions (ordinary vs special) are the core procedural elements the secretary manages.

A special resolution requires at least three times the votes cast in favour as against; an ordinary resolution requires a simple majority of votes cast.

Section 135 of the Companies Act, 2013 applies to companies with net worth of at least Rs 500 crore, turnover of at least Rs 1,000 crore, or net profit of at least Rs 5 crore in the preceding financial year.

Such companies must spend at least 2% of average net profits of the preceding three financial years on CSR activities.

A CSR Committee of the board is required, with at least one independent director where applicable; unspent CSR amounts must be transferred to an Unspent CSR Account or a specified fund.

Eligible CSR activities include education, health, sanitation, environment, gender equality, art and culture, and specified sports and technology incubators.

Business ethics concerns right and wrong conduct in business; principles include honesty, integrity, fairness, transparency, accountability and respect for stakeholders.

Corporate governance is the system by which companies are directed and controlled; it covers board structure, disclosure, audit and shareholder rights.

A code of conduct and whistle-blower policy are practical tools for ethics; SEBI LODR requires listed companies to frame them.

CSR is not charity alone: it is a statutory, board-governed, disclosed and auditable obligation with a defined reporting format.

Companies (Amendment) Act changes have strengthened compliance, introduced the CAA-1 form for certain approvals, and tightened rules on deposits and private placement.

SEBI LODR amendments have progressively shortened timelines for disclosure, introduced business responsibility and sustainability reporting (BRSR) for top listed companies, and strengthened board composition norms.

T+1 settlement for Indian equities became fully operational in January 2023; SEBI has been moving toward a shorter (T+0) settlement cycle on an optional basis.

The IEPF rules allow refund of shares and dividends transferred to the fund on application in the prescribed form; the underlying shares are transferred to the IEPF Authority.

UPI-based payment and digital application processes (ASBA, UPI mandate) have simplified IPO applications and refunds.

ESG (environmental, social, governance) reporting and green finance are increasingly relevant; SEBI has issued norms on green debt securities.

The Companies Act has been amended to decriminalise several procedural offences and to permit certain forms of electronic and virtual meetings.

Recent insolvency and corporate law changes have emphasised creditor rights, timely resolution and the role of the Insolvency and Bankruptcy Code, 2016.