Prospectus and Share Capital Questions and Answers

Q: What do you mean by a floating charge ?

A floating charge is a charge on present and future assets which can be used in the ordinary course of business.A floating charge is an equitable charge over a class of assets, present and future, that change from time to time, such as stock-in-trade and book debts. Until the charge crystallises, on winding up or default, the company may deal with those assets in the ordinary course of its business without the charge-holder's consent.Option C contradicts the defining feature, the freedom to use the assets. Options A and D describe fixed assets under a fixed charge, which the company cannot deal with freely.

Q: A prospectus which does not include complete particulars of the quantum or price of the securities is known as ................ .

It is a red herring prospectus.Section 32 of the Companies Act, 2013 defines a red herring prospectus as one that does not include complete particulars of the quantum or price of the securities offered. It is used in book-building issues, where the price is discovered from bids, and is filed with the Registrar before the issue opens.A shelf prospectus (section 31) covers several issues over a period, an abridged prospectus is a summary that accompanies application forms, and a deemed prospectus arises when securities are allotted for an offer for sale to the public.

Q: The equity shares issued by a company to its directors or employees for making available intellectual property rights or for know-how are known as :

They are sweat equity shares.Section 2(88) of the Companies Act, 2013 defines sweat equity shares as equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property rights or value additions. Section 54 governs their issue.Bonus shares are issued free to existing shareholders out of reserves. Demat refers to shares held in electronic form, not a type of issue, and 'special equity shares' is not a statutory category.

Provisions regarding "Subsidiary company not to hold shares in its holding company" has been discussed in Which section of Companies Act-2013?

A.Section - 48
B.Section - 125
C.Section - 19
D.Section - 39

Exam Year(s)

DSSSB - 2023,

Answer: C

The prohibition on a subsidiary company holding shares in its holding company is in Section 19 of the Companies Act, 2013. Any allotment or transfer of shares of a company to its subsidiary is void, and the section is placed in the opening chapter on the incorporation of a company.

Section 48 deals with variation of shareholders' rights, Section 125 with the Investor Education and Protection Fund, and Section 39 with allotment of securities. None of them has the subsidiary prohibition as its subject.

Discuss in Forum

Select the correct option based on the statements and conclusions given below based on the Companies Act, 2013.

Assertion(A):- Provisions regarding Share Capital and Debentures have been discussed in Chapter IV of the Companies Act, 2013.
Reason(R):- Provision regarding Global depository receipt have been discussed in section 41 of the Companies Act, 2013.?

A.A is false, but R is true
B.Both A and R are correct and R is the correct explanation of A
C.Both A and R are correct, but R is not the correct explanation of A
D.A is true, but R is false

Exam Year(s)

DSSSB - 2023,

Answer: C

Both statements are correct, but the Reason is not the explanation of the Assertion, so the answer is both correct, R not the explanation of A. Chapter IV of the Companies Act, 2013 deals with share capital and debentures, and Section 41 deals with global depository receipts, which is a provision found within that chapter.

The Reason gives the location of one provision among many in the chapter and does not explain why the chapter is called share capital and debentures. The options calling either statement false, or treating the Reason as the explanation, are wrong.

Discuss in Forum

What do you mean by a floating charge ?

A.It is a charge on fixed and present assets which can be used in the ordinary course of business.
B.It is a charge on present and future assets which can be used in the ordinary course of business
C.It is a charge on present and future assets which can't be used in the ordinary course of business
D.It is a charge on present and fixed assets which cannot be used in the ordinary course of business.

Exam Year(s)

MH SET - 2019, SET Exam - 2019,

Answer: B

A floating charge is a charge on present and future assets which can be used in the ordinary course of business.

A floating charge is an equitable charge over a class of assets, present and future, that change from time to time, such as stock-in-trade and book debts. Until the charge crystallises, on winding up or default, the company may deal with those assets in the ordinary course of its business without the charge-holder's consent.

Option C contradicts the defining feature, the freedom to use the assets. Options A and D describe fixed assets under a fixed charge, which the company cannot deal with freely.

Discuss in Forum

A prospectus which does not include complete particulars of the quantum or price of the securities is known as ................ .

A.Red herring prospectus
B.Shelf prospectus
C.Abridged prospectus
D.Deemed prospectus

Exam Year(s)

MH SET - 2020, SET Exam - 2020,

Answer: A

It is a red herring prospectus.

Section 32 of the Companies Act, 2013 defines a red herring prospectus as one that does not include complete particulars of the quantum or price of the securities offered. It is used in book-building issues, where the price is discovered from bids, and is filed with the Registrar before the issue opens.

A shelf prospectus (section 31) covers several issues over a period, an abridged prospectus is a summary that accompanies application forms, and a deemed prospectus arises when securities are allotted for an offer for sale to the public.

Discuss in Forum

The equity shares issued by a company to its directors or employees for making available intellectual property rights or for know-how are known as :

A.Bonus shares
B.Demat shares
C.Sweat equity shares
D.Special equity shares

Exam Year(s)

MH SET - 2023, SET Exam - 2023,

Answer: C

They are sweat equity shares.

Section 2(88) of the Companies Act, 2013 defines sweat equity shares as equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property rights or value additions. Section 54 governs their issue.

Bonus shares are issued free to existing shareholders out of reserves. Demat refers to shares held in electronic form, not a type of issue, and 'special equity shares' is not a statutory category.

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