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Maharashtra HSC Secretarial Practice study materials
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Maharashtra HSC Secretarial Practice practice questions

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Question 1Introduction to Corporate Finance and Capital Structure

Which of the following is the most appropriate description of corporate finance?

  1. The recording of daily cash receipts and payments in the cash book
  2. The preparation of income tax returns for a company
  3. The audit of financial statements by an independent auditor
  4. The management of money and other assets by a company to achieve its objectives Correct answer.

Explanation

Corporate finance deals with planning, raising, investing and managing funds of a business so that shareholder wealth is maximised. Book-keeping and tax filing are narrower accounting functions, while auditing is an independent review, not fund management.

Question 2Introduction to Corporate Finance and Capital Structure

A company needs funds mainly to purchase plant and machinery and to meet its day-to-day working expenses. Which pair of needs does this illustrate?

  1. Fixed capital requirement and working capital requirement Correct answer.
  2. Share forfeiture and reissue
  3. Debenture redemption and goodwill writing off
  4. Dividend distribution and tax planning

Explanation

Purchase of plant and machinery is a long-term fixed capital need, while meeting routine operating expenses is a working capital need. Both are classic reasons why a company raises finance.

Question 3Introduction to Corporate Finance and Capital Structure

Which of the following is a source of long-term finance for a company?

  1. Cash credit from a bank
  2. Outstanding wages
  3. Trade credit from suppliers
  4. Issue of equity shares Correct answer.

Explanation

Equity shares are issued for an indefinite period and form part of the company's permanent capital, making them long-term finance. Cash credit, trade credit and outstanding wages are short-term liabilities repaid within a year.

Question 4Introduction to Corporate Finance and Capital Structure

Which document issued by a company invites the public to subscribe to its securities and contains details of the issue?

  1. Memorandum of Association
  2. Prospectus Correct answer.
  3. Annual report
  4. Articles of Association

Explanation

A prospectus is the formal offer document that discloses the terms of the issue and the company's financial position to prospective investors. The memorandum and articles govern the company's constitution and internal rules, while an annual report reviews past performance.

Question 5Introduction to Corporate Finance and Capital Structure

Which feature distinguishes equity share capital from preference share capital?

  1. Equity shareholders receive dividend only after preference dividend is paid Correct answer.
  2. Equity shareholders have a right to redeem capital after a fixed period
  3. Equity shareholders have a fixed rate of dividend
  4. Equity shareholders rank ahead of creditors at winding up

Explanation

Equity dividend is paid out of residual profits after preference dividend has been settled, so equity holders bear the higher risk. Preference shares carry a fixed dividend rate and priority in payment.

Question 6Introduction to Corporate Finance and Capital Structure

Which of the following best describes retained earnings as a source of finance?

  1. Ploughing back of profits into the business instead of distributing them fully as dividend Correct answer.
  2. Sale of idle factory land
  3. Borrowing from banks against the security of stock
  4. Issue of debentures to the public

Explanation

Retained earnings arise when a company keeps part of its profits in the business as reserves rather than distributing them. This internal source involves no interest or issue cost and strengthens the capital base.

Question 7Introduction to Corporate Finance and Capital Structure

Which of the following is a characteristic of debentures?

  1. They are repaid only at the time of winding up
  2. They carry a fixed rate of interest payable whether or not profits are earned Correct answer.
  3. They represent ownership capital of the company
  4. They carry voting rights at general meetings

Explanation

Debentures are debt instruments on which interest at a stated rate must be paid irrespective of profits. Debenture holders are creditors, not owners, and have no voting rights.

Question 8Introduction to Corporate Finance and Capital Structure

A company's capital structure is best described as the composition of which of the following?

  1. Cash inflows and cash outflows
  2. Current assets and current liabilities
  3. Fixed assets and depreciation
  4. Equity share capital, preference share capital and long-term debt Correct answer.

Explanation

Capital structure refers to the mix of long-term sources, namely equity, preference capital and debt, used to finance the firm. It does not deal with short-term items or asset composition.

Question 9Introduction to Corporate Finance and Capital Structure

Which of the following is considered an internal factor affecting a company's capital structure?

  1. Inflation rate in the country
  2. Size of the business and its asset base Correct answer.
  3. Level of interest rates in the capital market
  4. Rate of corporate tax prevailing in the economy

Explanation

Internal factors arise within the firm and include the size of the business, nature of assets and growth plans. Tax rates, interest rates and inflation are external economic factors beyond the firm's control.

Question 10Introduction to Corporate Finance and Capital Structure

A company with highly fluctuating sales decides to keep its debt component low. Which factor of capital structure is the company considering?

  1. Control considerations
  2. Tax rate
  3. Flexibility of the capital structure
  4. Stability of earnings Correct answer.

Explanation

When earnings are unstable, a high fixed interest burden raises the risk of default, so firms keep debt low. This reflects the stability of earnings as a determinant of the debt-equity mix.

Question 11Introduction to Corporate Finance and Capital Structure

Which of the following is an advantage of using debt in the capital structure?

  1. It increases the financial risk of the company
  2. It may reduce the borrowing capacity of the company in future
  3. It creates a fixed obligation to pay interest
  4. Interest is a deductible expense, which lowers the effective cost of debt Correct answer.

Explanation

Interest paid on debt is allowed as a deduction in computing taxable income, creating a tax shield that reduces the effective cost of debt. The other options describe disadvantages or risks of debt.

Question 12Introduction to Corporate Finance and Capital Structure

Which of the following is a limitation of using excessive equity in the capital structure?

  1. Equity shareholders bear the residual risk of the business
  2. Equity capital is permanent capital
  3. Equity dividend is not tax deductible, so the cost of equity is generally higher than the after-tax cost of debt Correct answer.
  4. Equity shareholders have limited liability

Explanation

Dividends paid on equity are not allowable as a tax deduction, and equity investors demand a higher return for bearing risk, so equity is generally costlier than after-tax debt. The other statements are features, not drawbacks.

Question 13Introduction to Corporate Finance and Capital Structure

Which of the following securities gives the holder the option to convert it into equity shares at a later date?

  1. Cumulative preference shares
  2. Convertible debentures Correct answer.
  3. Redeemable preference shares
  4. Non-convertible debentures

Explanation

Convertible debentures carry a clause allowing the holder to exchange them for equity shares after a specified period. Non-convertible debentures are repaid in cash, while preference shares do not convert into equity.

Question 14Introduction to Corporate Finance and Capital Structure

A company issues shares to its existing shareholders in proportion to their present holding. What is this method of raising capital called?

  1. Bonus issue
  2. Private placement
  3. Public issue
  4. Rights issue Correct answer.

Explanation

A rights issue offers new shares to existing shareholders in proportion to their holdings, protecting their voting and ownership proportion. A public issue is open to all, private placement goes to select investors and a bonus issue is free of cost.

Question 15Introduction to Corporate Finance and Capital Structure

Which of the following is the main purpose of a bonus issue?

  1. To capitalise accumulated reserves by issuing free shares to existing shareholders Correct answer.
  2. To raise fresh cash from the public
  3. To repay long-term borrowings of the company
  4. To reduce the paid-up capital of the company

Explanation

In a bonus issue, accumulated reserves are converted into share capital and free shares are allotted to existing shareholders. No fresh funds are received by the company.

Question 16Introduction to Corporate Finance and Capital Structure

Which of the following is a source of short-term finance?

  1. Term loan from a financial institution
  2. Issue of equity shares
  3. Commercial paper Correct answer.
  4. Issue of debentures

Explanation

Commercial paper is an unsecured promissory note issued by large creditworthy companies to raise funds for a few months, making it short-term finance. Equity, debentures and term loans are long-term sources.

Question 17Introduction to Corporate Finance and Capital Structure

A firm has earnings before interest and tax of Rs. 10,00,000 and pays interest of Rs. 2,00,000 on its debt. What is its interest coverage ratio?

  1. 8 times
  2. 5 times Correct answer.
  3. 2 times
  4. 4 times

Explanation

The interest coverage ratio equals EBIT divided by interest, that is Rs. 10,00,000 divided by Rs. 2,00,000, giving 5 times. A higher ratio indicates a greater ability to meet interest obligations.

Question 18Introduction to Corporate Finance and Capital Structure

Which of the following statements about trading on equity is correct?

  1. It refers to the use of borrowed funds carrying a fixed return to increase the earnings available to equity shareholders Correct answer.
  2. It refers to the transfer of shares from one holder to another
  3. It refers to the purchase and sale of securities on a stock exchange
  4. It refers to the issue of bonus shares to equity shareholders

Explanation

Trading on equity means employing debt or preference capital, which carries a fixed charge, so that any surplus earnings accrue to equity shareholders. It is beneficial only when the return on investment exceeds the fixed cost of the borrowed funds.

Question 19Introduction to Corporate Finance and Capital Structure

A company has a debt-equity ratio of 2:1. If its total long-term debt is Rs. 40,00,000, what is the amount of shareholders' funds?

  1. Rs. 80,00,000
  2. Rs. 10,00,000
  3. Rs. 40,00,000
  4. Rs. 20,00,000 Correct answer.

Explanation

A debt-equity ratio of 2:1 means debt is twice the shareholders' funds, so shareholders' funds equal debt divided by two. Rs. 40,00,000 divided by 2 gives Rs. 20,00,000.

Question 20Introduction to Corporate Finance and Capital Structure

Which of the following best explains why a company's optimal capital structure minimises its overall cost of capital?

  1. At the optimum, the company uses the maximum possible debt irrespective of risk
  2. At the optimum, the company uses only equity capital to avoid all interest payments
  3. At the optimum, the proportion of cheaper debt is balanced against the rising financial risk so that the weighted average cost is lowest Correct answer.
  4. At the optimum, the company issues only preference shares with a fixed dividend

Explanation

The optimal mix balances the tax advantage of cheaper debt against the rising cost of equity caused by greater financial risk. The weighted average cost of capital is lowest at that point, which maximises the value of the firm.

Question 21Introduction to Corporate Finance and Capital Structure

Which of the following distinguishes financial leverage from operating leverage?

  1. Both arise only from the payment of dividends to shareholders
  2. Both arise solely from changes in the level of sales revenue
  3. Financial leverage arises from fixed financial charges such as interest, while operating leverage arises from fixed operating costs such as rent Correct answer.
  4. Financial leverage arises from fixed operating costs, while operating leverage arises from interest on debt

Explanation

Financial leverage results from the use of funds carrying fixed financial charges like interest and preference dividend. Operating leverage results from fixed operating costs such as rent, insurance and depreciation in the cost structure.

Question 22Introduction to Corporate Finance and Capital Structure

A company expects a return of 15 per cent on its investment and can borrow at 10 per cent interest. Which of the following is the likely effect of using debt in this situation?

  1. Favourable financial leverage, because the return on investment exceeds the cost of debt Correct answer.
  2. Unfavourable financial leverage, because interest must be paid every year
  3. No effect on equity earnings, because debt and equity are treated alike
  4. A fall in the earnings per share because of the interest burden

Explanation

When the return earned on funds exceeds the fixed cost of borrowing, the surplus after paying interest belongs to equity shareholders, so earnings per share rise. This is favourable leverage, or positive trading on equity.

Question 23Introduction to Corporate Finance and Capital Structure

Which of the following is a reason why a company may prefer internal financing through retained earnings?

  1. It avoids issue expenses and the loss of control associated with external issues Correct answer.
  2. It creates a fixed obligation to pay a return to the providers of funds
  3. It requires the approval of the stock exchange for every retention of profit
  4. It provides a tax shield similar to interest on debentures

Explanation

Retained earnings are generated internally, so no underwriting, brokerage or prospectus costs arise and no new shareholders dilute control. Unlike debt, they also impose no fixed charge on the company.

Question 24Introduction to Corporate Finance and Capital Structure

Which of the following statements about the security offered by different long-term sources is correct?

  1. Equity shareholders are paid before debenture holders at winding up
  2. Both debenture holders and equity shareholders rank equally at the time of winding up
  3. Debenture holders are owners with voting rights, whereas equity shareholders are creditors
  4. Debenture holders are creditors secured or unsecured, whereas equity shareholders are owners with a residual claim Correct answer.

Explanation

Debenture holders lend money and are creditors of the company, and their claim may be secured by a charge on assets. Equity shareholders are owners whose claim ranks last, after all creditors are paid.

Question 25Sources of Corporate Finance

Which source of corporate finance is described as 'owned capital' because the providers become part-owners of the company?

  1. Debenture capital
  2. Equity share capital Correct answer.
  3. Public deposits
  4. Trade credit

Explanation

Equity shareholders are the owners of the company; their capital carries no fixed obligation of return and bears the residual risk of the business, so it is called owned capital. Debentures, deposits and trade credit are all borrowed funds creating a liability.

Question 26Sources of Corporate Finance

A company wishes to issue shares to the public for the first time and get them listed on a recognised stock exchange. Which market does this issue belong to?

  1. Secondary market
  2. Money market
  3. Forex market
  4. Primary market Correct answer.

Explanation

A first-time public issue of shares by a company is a new issue of securities, which takes place in the primary (new issue) market. The secondary market deals only in securities already issued and listed.

Question 27Sources of Corporate Finance

Which of the following is a characteristic feature of preference shares?

  1. Voting rights on every resolution at general meetings
  2. A fixed rate of dividend paid before equity dividend Correct answer.
  3. A fixed rate of interest payable whether or not profits are earned
  4. A charge on the assets of the company in the nature of a mortgage

Explanation

Preference shareholders receive dividend at a stated rate, and this dividend is paid before anything is paid to equity shareholders. Their claim on dividend is preferential but still depends on profits being available.

Question 28Sources of Corporate Finance

Which document issued by a company invites the public to subscribe for its securities and contains full disclosure about the issue?

  1. Prospectus Correct answer.
  2. Memorandum of Association
  3. Articles of Association
  4. Share certificate

Explanation

A prospectus is any document described as such that invites the public to subscribe for securities, and it must disclose the company's particulars, the terms of the issue and the risk factors. The Memorandum and Articles govern the constitution and internal management of the company, not the invitation to invest.

Question 29Sources of Corporate Finance

A company needs funds for about six months to build up inventory before the festive season. Which source is most appropriate?

  1. Trade credit from suppliers Correct answer.
  2. Issue of equity shares
  3. Retained earnings
  4. Issue of debentures repayable after ten years

Explanation

Trade credit is a short-term source arising from purchases on credit and is suited to financing a temporary build-up of inventory for a few months. Equity shares, long-term debentures and retained earnings are long-term sources and would not match a six-month need.

Question 30Sources of Corporate Finance

Which of the following is an internal source of corporate finance?

  1. Retained earnings Correct answer.
  2. Public deposits
  3. Bank overdraft
  4. Issue of commercial paper

Explanation

Retained earnings are profits ploughed back into the business and are generated within the company, so they are an internal source. Public deposits, bank overdraft and commercial paper all bring in funds from outside parties.

Question 31Sources of Corporate Finance

In a public issue of shares, what does the term 'underwriting' mean?

  1. The listing of shares on a stock exchange after allotment
  2. A promise by the company to buy back shares from investors after one year
  3. The process of fixing the premium at which shares are issued
  4. An agreement by which a party undertakes to subscribe to shares not taken up by the public Correct answer.

Explanation

Underwriting is an arrangement under which the underwriter agrees, for a commission, to take up any portion of the issue that the public does not subscribe. It gives the company an assurance that the issue will be fully subscribed.

Question 32Sources of Corporate Finance

A company issues debentures carrying a floating charge on its stock-in-trade. What does a floating charge mean?

  1. The charge can be created only after the debentures are fully paid
  2. The charge remains dormant and crystallises on the occurrence of a specified event Correct answer.
  3. The charge gives debenture holders voting rights in the company
  4. The charge is fixed on one identified factory building from the outset

Explanation

A floating charge is a charge on assets that keep changing, such as stock, and it remains dormant until it crystallises on winding up or on the happening of an event specified in the debenture. A fixed charge, by contrast, attaches to an identified asset immediately.

Question 33Sources of Corporate Finance

A profitable company wants to issue bonus shares. Which condition must be satisfied for such an issue?

  1. The company must issue the shares at a price equal to the face value to the public
  2. The issue must be made out of free reserves or share premium, not out of revaluation reserves Correct answer.
  3. The company must have paid dividend in all the preceding ten years
  4. The shares must be issued only to debenture holders

Explanation

Bonus shares are issued free of cost to existing shareholders by capitalising free reserves, share premium or capital redemption reserve. Revaluation reserves, being unrealised, cannot be used for this purpose.

Question 34Sources of Corporate Finance

A company needs long-term funds but does not want to dilute control or give voting rights to the new investors. Which source best fits this objective?

  1. Issue of sweat equity shares
  2. Further issue of equity shares to the public
  3. Issue of non-convertible debentures Correct answer.
  4. Issue of rights shares to existing shareholders

Explanation

Debenture holders are creditors and do not get voting rights, so issuing non-convertible debentures raises long-term funds without diluting control. Any fresh issue of equity, sweat equity or rights shares adds shareholders and alters the control pattern.

Question 35Sources of Corporate Finance

Which of the following statements about a company's 'rights issue' is correct?

  1. Shares are issued to creditors in settlement of their dues
  2. Shares are issued to employees under an employee stock option scheme
  3. Shares are first offered to existing equity shareholders in proportion to their holding Correct answer.
  4. Shares are offered to the public at a price fixed by the stock exchange

Explanation

In a rights issue the company offers new shares to its existing equity shareholders in the ratio of their present holding, usually at a price below the market price. This protects existing shareholders against dilution of their stake.

Question 36Sources of Corporate Finance

A public limited company accepts deposits from the public under the applicable rules. Which feature correctly describes such public deposits?

  1. They are repayable only on the winding up of the company
  2. They are secured by a first mortgage on the company's immovable property
  3. They carry voting rights at general meetings of the company
  4. They are unsecured borrowings carrying a fixed rate of interest for a specified period Correct answer.

Explanation

Public deposits are unsecured borrowings accepted from the public for a period permitted by law, carrying a fixed rate of interest. Depositors have no voting rights and the deposits are repayable on maturity, not only on winding up.

Question 37Sources of Corporate Finance

A company wants to raise short-term funds by issuing an unsecured promissory note in the money market to institutional investors. Which instrument is being used?

  1. Certificate of deposit
  2. Convertible debenture
  3. Equity share
  4. Commercial paper Correct answer.

Explanation

Commercial paper is an unsecured, short-term promissory note issued by large, highly rated companies to raise funds in the money market, usually at a discount. Certificates of deposit are issued by banks, while shares and debentures are long-term securities.

Question 38Sources of Corporate Finance

A company's issue was subscribed by the public to the extent of 60 per cent of the offer. The underwriter had agreed to underwrite the whole issue. What is the underwriter's liability?

  1. To arrange a fresh public issue for the balance
  2. To refund the application money to the public
  3. To subscribe to the entire 100 per cent of the issue
  4. To subscribe to the remaining 40 per cent of the issue Correct answer.

Explanation

An underwriter's obligation is limited to the portion of the issue not taken up by the public, so here it extends to the unsubscribed 40 per cent. The public subscription already received stands and is not disturbed.

Question 39Sources of Corporate Finance

Which of the following is a merit of retained earnings as a source of finance?

  1. It requires the approval of the stock exchange for every retention
  2. It creates a fixed obligation to pay interest every year
  3. It involves no flotation cost and no dilution of control Correct answer.
  4. It increases the number of shareholders of the company

Explanation

Retained earnings are internally generated, so the company avoids the cost of issuing securities and does not bring in new shareholders who could dilute control. They also impose no fixed charge on earnings, unlike debt.

Question 40Sources of Corporate Finance

A company issues shares at a price higher than their face value. What is the excess amount called and where is it shown?

  1. Uncalled capital, shown under share capital
  2. Securities premium, credited to the securities premium account Correct answer.
  3. Discount on issue, debited to the profit and loss account
  4. Calls in arrears, shown as a current asset

Explanation

When shares are issued at a price above face value, the excess is securities premium and must be credited to a separate securities premium account. Its use is restricted by law to specified purposes such as bonus issue and writing off preliminary expenses.

Question 41Sources of Corporate Finance

A company wants to raise funds from employees by offering shares at a concessional price with a lock-in period. Which type of issue is this?

  1. Employee stock option scheme Correct answer.
  2. Bonus issue
  3. Private placement to institutions
  4. Rights issue

Explanation

An employee stock option scheme gives employees the right to buy shares of the company at a predetermined, often concessional, price, usually subject to vesting and a lock-in. Rights and bonus issues are made to existing shareholders, while a private placement goes to select investors.

Question 42Sources of Corporate Finance

Which of the following correctly distinguishes shares from debentures?

  1. Share capital is always repayable after a fixed term; debentures are permanent capital
  2. Shareholders receive interest; debenture holders receive dividend
  3. Shareholders are owners and receive dividend; debenture holders are creditors and receive interest Correct answer.
  4. Both shareholders and debenture holders have voting rights at general meetings

Explanation

Shareholders subscribe to the share capital and are owners entitled to dividend, whereas debenture holders lend money and are creditors entitled to interest. This ownership-versus-creditorship distinction is the core difference between the two securities.

Question 43Sources of Corporate Finance

A company wants to raise funds through a private placement of debentures. Which statement correctly describes a private placement?

  1. Securities are issued free of cost to existing shareholders
  2. Securities are sold only through a recognised stock exchange
  3. Securities are offered to the general public through a prospectus
  4. Securities are allotted to a select group of identified investors without a public offer Correct answer.

Explanation

A private placement involves allotting securities to a small number of identified investors, such as banks, mutual funds or insurers, without making a public offer. It avoids the cost and delay of a full public issue but is subject to the limits and conditions laid down by the regulator.

Question 44Sources of Corporate Finance

A company has surplus funds for three months and buys treasury bills. Which market is it operating in?

  1. Capital market
  2. Primary market for equity
  3. Commodity market
  4. Money market Correct answer.

Explanation

Treasury bills are short-term instruments issued by the government and are traded in the money market, which deals in funds for up to one year. The capital market handles long-term securities such as shares and debentures.

Question 45Sources of Corporate Finance

A company with substantial accumulated free reserves wants to convert part of them into share capital without receiving any money from shareholders. Which step should it take?

  1. Issue bonus shares to existing equity shareholders Correct answer.
  2. Issue debentures to the existing shareholders
  3. Make a rights issue at par to existing shareholders
  4. Accept public deposits from members

Explanation

Converting free reserves into share capital and allotting the resulting shares free of cost to members is a bonus issue. No fresh money is received, and the reserves are capitalised in favour of the existing shareholders.

Question 46Sources of Corporate Finance

A company has issued debentures secured by a floating charge. On winding up, how do debenture holders rank as compared with unsecured creditors?

  1. They rank equally with unsecured creditors for all assets
  2. They have a preferential claim over the assets charged, ahead of unsecured creditors Correct answer.
  3. They are paid only after all unsecured creditors are fully paid
  4. They have no claim on the assets of the company

Explanation

A charge, whether fixed or floating, gives the charge-holder a secured claim over the charged assets, so debenture holders are paid out of those assets before unsecured creditors. On crystallisation the floating charge attaches to the assets then covered by it.

Question 47Sources of Corporate Finance

A company with a high debt-equity ratio plans a large expansion and is advised against further borrowing. Which reasoning best supports the advice?

  1. Additional debt prevents the company from declaring dividend in future years
  2. Additional debt raises fixed interest liability and financial risk, making further borrowing costly Correct answer.
  3. Additional debt must always be repaid within twelve months
  4. Additional debt automatically reduces the voting rights of existing shareholders

Explanation

Interest on debt is a fixed charge that must be paid whether or not profits are earned, so a company already highly geared increases its financial risk and its cost of borrowing by taking on more debt. Equity may therefore be preferred despite the dilution it brings.

Question 48Sources of Corporate Finance

A company makes a public issue of shares that is over-subscribed, and the allotment is made on a proportionate basis. What is the effect on an applicant who applied for more shares than the proportion allotted?

  1. The excess money is forfeited by the company
  2. The excess money is transferred to the securities premium account
  3. Excess application money must be refunded or adjusted against allotment within the prescribed time Correct answer.
  4. The applicant is allotted the entire number of shares applied for

Explanation

Where an issue is oversubscribed and allotment is made proportionately, the company must refund the excess application money or adjust it towards the amount due on allotment within the time prescribed by law. Retaining it beyond that period attracts interest liability.

Question 49Issue and Allotment of Shares

Under the Companies Act 2013, a public company may issue shares to the public only after it has obtained which document from SEBI?

  1. Certificate of Commencement of Business
  2. Certificate of Incorporation
  3. Observation letter on the draft prospectus Correct answer.
  4. Consent of the Registrar of Companies

Explanation

A public company making a public issue must file a draft offer document with SEBI and may proceed only after SEBI issues its observation letter. The certificate of incorporation merely proves the company exists, and the commencement certificate is a separate ROC requirement. SEBI's observations confirm that the disclosure in the offer document is adequate.

Question 50Issue and Allotment of Shares

A company invites applications for 5,00,000 equity shares of ₹10 each at a premium of ₹15 per share. What amount must an applicant pay at the time of application if the company follows the minimum application money rule?

  1. ₹5 per share
  2. ₹25 per share
  3. ₹10 per share Correct answer.
  4. ₹15 per share

Explanation

The minimum application money must be at least 5% of the nominal value of the share, and the premium is not counted for this purpose. Five per cent of ₹10 is 50 paise, but companies commonly collect the full face value of ₹10 at application. The premium of ₹15 is collected separately and does not form part of the minimum application money.