Multiple Choice Questions

Unit 2- Prospectus and Allotment

Q1) The paid-up share capital of ABC Ltd. is 50,00,000 shares of ₹ 200 each. 20% of its paid-up share capital is held by 4 of its promoters, who wants to off load their holding by making an offer of sale to the public by issuing a prospectus. They want to authorise someone to take all actions and complete all formalities related to such offer of sale. From the following who can be authorised by them to do so

(a) Any person who has agreed to fulfil all the formalities related to such offer of sale

(b) Any one or more director of the company.

(c) Company itself whose shareholding they want to offload.

(d) Any competent officer of the company.

Q2) Extra Limited is a growing Company and requires additional funds for expansion from time to time. They are following the same process for making an offer to public and then issue those shares. This is very time and energy consuming for them. Kindly advise them if there is any way out.              

(a) During first offer they shall file prospectus with a validity on one year, so subsequent offer issued during the period of validity of that prospectus, no further prospectus is required;

(b) During first offer they shall file prospectus with a validity on two years, so subsequent offer issued during the period of validity of that prospectus, no further prospectus is required;

(c) During first offer they shall file shelf prospectus with a validity on one year, so subsequent offer issued during the period of validity of that prospectus, no further prospectus is required;

(d) During first offer they shall file shelf prospectus with a validity on two years, so subsequent offer issued during the period of validity of that prospectus, no further prospectus is required.

Q3) When a copy of the contract for the payment of underwriting commission is required to be delivered to the Registrar:                                                                                                                        

(a) Three days before the delivery of the prospectus for registration

(b) At the time of delivery of the prospectus for registration

(c) Three days after the delivery of the prospectus for registration

(d) Five days after the delivery of the prospectus for registration

Q4) Which of the following statement is contrary to the provisions of the Companies Act, 2013?

(a) A private company can make a private placement of its securities.

(b) The company has to pass a special resolution for private placement.

(c) Minimum offer per person should have Market Value of ₹20,000.

(d) A public company can make a private placement of its securities.

Q5) A prospectus which does not include complete particulars of the quantum or price of the securities included therein is called:

(a) A deemed Prospectus

(b) A Shelf Prospectus

(c) An Abridged Prospectus

(d) A Red Herring Prospectus

Q6) The minimum amount of subscription in a public issue shall be received within ____ days from the date of issue of prospectus.

(a) 30

(b) 60

(c) 90

(d) 120

Q7) The time limit within which a copy of the contract for the payment of underwriting commission is required to be delivered to the Registrar is:

(a) Three days before the delivery of the prospectus for registration

(b) At the time of delivery of the prospectus for registration

(c) Three days after the delivery of the prospectus for registration

(d) Five days after the delivery of the prospectus for registration

Q8) An issuing house (share broker) has issued an advertisement in two leading newspapers for selling a large number of shares allotted to it by a company under a private placement. In which of the following conditions will the advertisement NOT be deemed to be a prospectus:

(a) Advertisement was given within six months from the date of allotment

(b) Advertisement was given after six months from the date of allotment and the issuing house has paid the entire consideration to the company

(c) The issuing house did not pay entire consideration to the company till the date of allotment

(d) advertisement was given within three month from the date of allotment

Q9) A shelf prospectus filed with the ROC shall remain valid for a period of:

(a) one year from the date of registration

(b) one year from the date of closing of first issue

(c) one year from the date of opening of first issue

(d) Ninety days from the date on which a copy was delivered to ROC

Q10) Shripad Religious Publishers Limited has received application money of ₹ 20,00,000 (2,00,000 equity shares of ₹10 each) on 10th October, 2019 from the applicants who applied for allotment of shares in response to a private placement offer of securities made by the company to them. Select the latest date by which the company must allot the shares against the application money so received.

(a) 9th November, 2019

(b) 24h November, 2019

(c) 9th December, 2019.

(d) 8th January, 2020

Q11) Being in need of further capital, Rimsi Cotton-Silk Products Limited offered 50 lacs equity shares of ₹ 1 each to 50 identified persons on ‘private placement’ basis and accordingly a letter of offer accompanied by application the necessary form was sent to them after fulfillment of due formalities including passing of special resolution. One of the applicants Rajan made a written complaint to the company highlighting  the fact that the offer letter was incomplete as well as illegal, as it did not contain ‘renunciation clause’ as he wanted to exercise his ‘right of renunciation’ in favour of his son Uday. By choosing the correct option, advise the company in this matter.

(a) As the ‘Right of Renunciation’ cannot be denied, the company needs to rectify its mistake by including the same in the offer  letter and the application form.

(b) The company is prohibited from providing ‘Right of Renunciation’ so the offer letter and the application form need not include any such clause.

(c) Instead of absolute prohibition, the company can provide ‘Right of Renunciation’ limited to twenty five percent of offering.

(d) Instead of absolute prohibition, the company can provide ‘Right of Renunciation’ limited to fifty percent of offering.

Q12) Innovative Tech Sol Limited intends to invite subscription for ₹ 1.10 crores equity shares of ₹ 10 each on private placement basis. The persons identified as potential subscribers are within the statutory limit  and also include the two other categories to which such statutory limit is not applicable. One such category is employees of the company who are offered equity shares under Employees’ Stock Option Scheme. The other excluded category is:

(a) Quality Institutional Buyers

(b) Qualified Institutional Buyers.

(c) Qualificational Institutional Buyers.

(d) Qualified Investing Institutional Buyers.

Q13) Neptune Metal Tools Limited was incorporated on 2nd December, 2018 with twenty-five subscribers and authorised capital of ₹50,00,000 (5,00,000 equity shares of ₹10 each). The directors of the company are  in a dilemma whether to issue share certificates to the subscribers in physical form or in dematerialized form. Advise them correctly on this matter:

(a) Being an unlisted company, Neptune may either issue physical share certificates to the subscribers or alternatively, issue them in dematerialized form.

(b) Neptune needs to issue shares to the subscribers only in dematerialized form.

(c) A company having more than 100 shareholders needs to issue shares in dematerialized form and therefore, Neptune may issue physical share certificates to the subscribers.

(d) A company having authorised capital of fifty lakhs and above needs to issue shares in dematerialized form and therefore, Neptune may issue physical share certificates to the subscribers.

Q14) The amount that an unlisted public company is required to maintain as security deposit, at all times, with the respective depository when it  dematerializes its securities shall be

(a) Equal to not less than one year’s fees payable to the depository

(b) Equal to not less than two years’ fees payable to the depository

(c) Equal to not less than two and a half years’ fees payable to the depository

(d) Equal to not less than three years’ fees payable to the depository

Q15) Commission is permitted to be paid to any underwriter by the company only in respect of an offer of securities:

(a) where securities are offered on rights basis

(b) where securities are offered in the form of bonus issue

(c) where securities are offered on private placement basis

(d) where securities are offered to the public for subscription

Q16) In case of ‘offer of sale of shares by certain members of the company’, which of the following options is applicable:

(a) The provisions relating to minimum subscription are not applicable

(b) Entire minimum subscription amount is required to be received within three days of the opening date

(c) 25% of the minimum subscription amount is required to be received on the opening date and the remaining 75% within three days thereafter

(d) 50% of the minimum subscription is required to be received by the second day of the opening date and the remaining 50% within next three days after the second day

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