COMPANY

LAW
ASSIGNMENT-1

NAME :- SHIVAM SINGH

COURSE :- B.COM PROGRAM (A)
ROLLNO. :- 23/40033
 Assignment -1
1. Write a short note on each of the following: (20)
(a) Rights Shares
 Rights shares are a type of offering made by a company to
its existing shareholders, providing them with the
opportunity to purchase additional shares at a discounted
price compared to the prevailing market rate. This issuance
is made in proportion to their current shareholding. The
purpose of rights shares is to raise additional capital for the
company while giving existing shareholders the chance to
maintain their ownership percentage without dilution by
external investors. By offering shares at a discounted price,
companies aim to incentivize their shareholders to
participate in the offering, thus ensuring a more stable
capital base. Rights shares are often seen as a fair way to
raise funds, as they provide existing shareholders with
preferential treatment and the opportunity to increase their
stake in the company at a lower cost. This can help
strengthen investor confidence and potentially bolster the
company's financial position.

(b) Buy Back of Shares

 Share buyback, also known as stock repurchase, is a corporate
action where a company purchases its own outstanding shares
from the open market. This process effectively reduces the
number of shares available for trading, thereby increasing the
ownership stake of existing shareholders. Companies may opt
for share buybacks to signal confidence in their financial
health, enhance shareholder value, or utilize excess cash
reserves efficiently. By repurchasing shares, companies can
also offset dilution resulting from employee stock options or
convertible securities. Share buybacks can lead to an increase
in earnings per share and stock price, as the same earnings are
spread across fewer shares. However, critics argue that
buybacks may artificially inflate stock prices and divert
resources away from other investments, such as research and
 development or capital expenditures. Overall, the decision to
engage in a share buyback requires careful consideration of the
company's financial position and strategic objectives.

(c) Transfer vs transmission of shares

 Transfer and transmission of shares are two distinct
processes related to the ownership of shares in a company.

 Transfer of shares refers to the voluntary transfer of

ownership from one party to another, typically through a
sale or gift. This process involves the execution of a transfer
deed and the delivery of share certificates to the new owner.
It requires the consent of both the transferor and the
transferee, along with compliance with legal and regulatory
requirements.

 On the other hand, transmission of shares occurs when the

ownership of shares is transferred due to events such as
death, bankruptcy, or insolvency of the shareholder. In such
cases, the shares are passed on to the legal heirs or
beneficiaries of the deceased or insolvent shareholder, or to
the trustee or administrator appointed by the court.
Transmission typically involves legal procedures, such as
probate or court orders, to establish the rightful ownership
of the shares.

 In summary, while transfer involves voluntary exchange,

transmission arises from involuntary events triggering a
change in ownership.
(d) Dematerialisation of Shares
 Dematerialization of shares refers to the process of converting
physical share certificates into electronic form. This
transformation eliminates the need for paper certificates and
allows shares to be held and traded electronically.

 The dematerialization process involves opening a demat

account with a Depository Participant (DP), who acts as an
intermediary between the investor and the depository. The
 investor submits the physical share certificates along with a
demat request form to the DP, who verifies the documents and
initiates the dematerialization process. Once the shares are
dematerialized, they are credited to the investor's demat
account in electronic form.
 Dematerialization offers several benefits, including enhanced
convenience, reduced risk of loss or theft, faster settlement of
trades, and lower transaction costs. It also promotes
transparency and efficiency in the securities market by
streamlining shareholding processes and reducing paperwork.
As a result, dematerialization has become the preferred mode of
holding and trading shares in many jurisdictions.

2. (a) State the conditions to be satisfied before a company may forfeit the
shares. What is the effect of such forfeiture? (5)
 Before a company may forfeit shares, certain conditions must
typically be satisfied, including:

1. Non-payment of Calls: The shareholder must have failed

to pay the calls (unpaid portion of the share price) or any installment
thereof within the specified timeframe.

2. Notice: The company must issue a formal notice to the

shareholder, providing a reasonable opportunity to pay the
outstanding amount or rectify the default.

3. Resolution: The board of directors or the company's

governing body must pass a resolution authorizing the forfeiture of
shares due to non-payment.

4. Compliance: The company must comply with any

relevant legal requirements and provisions outlined in its articles of
association regarding share forfeiture.

The effect of such forfeiture is the cancellation of the

forfeited shares and the loss of all rights and interests associated
with them by the defaulting shareholder. These forfeited shares may
 then be reissued, sold, or otherwise dealt with by the company at its
discretion, subject to legal and regulatory requirements. The
shareholder typically forfeits any amounts previously paid on the
forfeited shares, and the company may also have the right to recover
any outstanding debts or liabilities from the shareholder.

(b) “Surrender of shares is the same thing as forfeiture of shares”.

Comment. (5)
 "Surrender of shares" and "forfeiture of shares" are two distinct
processes in corporate law, each with its own implications and
procedures.

Surrender of shares:
- Surrender of shares refers to a voluntary act by a shareholder to return or
give up their shares to the company.
- This process is typically initiated by the shareholder, often for reasons
such as financial difficulties, disinterest in ownership, or a desire to exit the
company.
- Surrender of shares is usually done in accordance with the terms and
conditions specified in the company's articles of association or shareholder
agreement.
- The surrendered shares are returned to the company without any default
or breach of payment obligations by the shareholder.
- Share surrender does not involve any punitive actions against the
shareholder and is generally a consensual and amicable process.

Forfeiture of shares:
- Forfeiture of shares, on the other hand, is a punitive action taken by the
company against a shareholder who has failed to fulfill their payment
obligations.
- It typically occurs when a shareholder fails to pay calls or installments on
shares within the specified timeframe, as outlined in the company's articles
of association.
- Forfeiture is initiated by the company's board of directors or governing
body through a resolution passed after proper notice to the defaulting
shareholder.
- The forfeited shares are cancelled, and the shareholder loses all rights
and interests associated with them, including any amounts previously
paid.
- The company may then reissue, sell, or otherwise deal with the forfeited
shares as it sees fit, subject to legal and regulatory requirements.

In summary, while both surrender of shares and forfeiture of shares involve

the return of shares to the company, they differ significantly in terms of
voluntariness, the reasons behind the action, and the consequences for the
shareholder. Surrender is voluntary and typically initiated by the
shareholder, while forfeiture is a punitive action taken by the company due
to non-payment by the shareholder.
(c) Distinguish between Lien on shares and forfeiture of shares. (5)
 Lien on shares and forfeiture of shares are two distinct
concepts in corporate law, each pertaining to the rights and
remedies available to companies in relation to shareholder
obligations.

Lien on shares:
1. Definition: A lien on shares refers to a legal right of the company to
retain possession of a shareholder's shares as security for the payment of
debts or obligations owed by the shareholder to the company.
2. Nature: Lien on shares is a passive right that allows the company to
hold onto the shares until the debt or obligation is satisfied by the
shareholder.
3. Purpose: The purpose of imposing a lien on shares is to secure the
company's interests and ensure that shareholders fulfill their payment
obligations.
4. Retention: The company retains possession of the shares until the debt is
settled, but the shareholder retains ownership rights and entitlements
associated with the shares.
5. Enforcement: If the shareholder fails to fulfill their payment obligations,
the company may enforce the lien by selling the shares to recover the
outstanding debt.

Forfeiture of shares:
1. Definition: Forfeiture of shares involves the cancellation of a
shareholder's shares due to the shareholder's failure to fulfill payment
obligations, typically related to calls or installments on shares.
2. Nature: Forfeiture of shares is an active measure taken by the company
to penalize the shareholder for non-payment, resulting in the loss of
ownership rights and entitlements associated with the forfeited shares.
3. Purpose: The purpose of forfeiture is to compel shareholders to fulfill
their payment obligations and to maintain the integrity of the company's
share capital.
4. Cancellation: The forfeited shares are cancelled by the company, and
the shareholder loses all rights and interests associated with them.
5. Reissue or disposal: The company may reissue, sell, or otherwise deal
with the forfeited shares as it sees fit, subject to legal and regulatory
requirements.

In summary, while both lien on shares and forfeiture of shares involve

actions taken by the company in response to shareholder defaults,
they differ in nature, purpose, and consequences. Lien on shares is a
passive right that allows the company to retain possession of shares
as security, while forfeiture of shares is an active measure that results
in the cancellation of shares due to non-payment.

3. What are the Statutory Provisions of Companies Act 2013 regarding

allotment of shares? (5)
 The Companies Act, 2013 of India provides several statutory
provisions regarding the allotment of shares. Some key
provisions include:
 1. Authorization by Articles of Association: Section 42 of the
Companies Act, 2013 mandates that the allotment of shares must be
authorized by the articles of association of the company.

2. Issue of Prospectus or Private Placement: Sections 23 to 42 of the

Companies Act, 2013 specify the procedures for issuing shares either
through a prospectus (public offer) or through private placement
(offer to select persons).

3.Allotment within prescribed time: Section 39 of the Companies Act,

2013 requires that shares must be allotted within 60 days from the
date of receipt of the application money for the shares. If shares are
not allotted within this period, the company must refund the
application money.

4. Payment for Shares: Section 39 also mandates that the allotment of

shares must be made only after receiving the minimum subscription
amount specified in the prospectus or offer document.

5. Filing of Return of Allotment: Section 42 of the Companies Act, 2013

requires the company to file a return of allotment with the Registrar of
Companies within 30 days of allotment of shares.

6. Compliance with SEBI Regulations: Companies making public offers

of shares must also comply with the regulations of the Securities and
Exchange Board of India (SEBI), which govern the process of allotment
and listing of securities.

These statutory provisions are designed to ensure transparency, fairness,

and compliance with regulatory requirements in the allotment of shares
by companies.