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CA Intermediate · Corporate and Other Laws

Share Capital and Debentures: CA Intermediate Corporate and Other Laws

Share Capital and Debentures covers how a company raises money through shares and debentures, and how it changes, reduces or buys back that capital. Solve questions by naming the provision, applying the facts given, and stating a clear conclusion. Learn the conditions and limits exactly.

What this chapter covers

This chapter explains how a company funds itself. You start with the kinds of share capital and who can vote. Then you study how shares are issued, through a prospectus, private placement, rights or bonus. You then study special issues like sweat equity and ESOP, pricing at premium or discount, and the paperwork of certificates, transfer and transmission.

The second half deals with changing capital. A company can alter its share capital, reduce it, or buy back its own shares. Debentures sit beside shares as the borrowing side of funding, with their own types and the role of a debenture trustee.

The chapter links to the rest of the paper. Board and general meeting rules decide who must pass a resolution for each step. Charges, deposits and winding up use the same ideas. Strong basics here make Company Law answers easier to write throughout Part I.

Share capital questions are condition-driven, so they suit both the 30 marks of MCQs and the 70 marks of written answers. A single rule, such as a buy-back limit or a voting right, can be tested as a two-mark MCQ or as a case study needing provision, facts and conclusion. Because the rules are precise, careful preparation here gives dependable marks that do not rely on guesswork.

Share Capital and Debentures: topics in the order to study them

  1. 1Kinds of Share Capital and Voting RightsStart here because equity, preference and voting rights are the vocabulary for every later topic.
  2. 2Issue of Shares: Prospectus and AllotmentPublic issue is the base route for raising capital, so learn it before the other routes.
  3. 3Private Placement, Rights and Bonus IssueThese are the alternative issue routes, easier to learn once you know the public issue process.
  4. 4Sweat Equity Shares and ESOPThey are special issues to employees and directors, so they come after the general issue routes.
  5. 5Issue of Shares at Premium and DiscountPricing rules and the use of the securities premium account are needed before buy-back.
  6. 6Share Certificates, Transfer and TransmissionThis covers what happens after shares are issued, mostly procedure and timelines.
  7. 7Alteration and Reduction of Share Capital; Buy-backDo this after issue and premium, as it uses the securities premium account and free reserves.
  8. 8Debentures: Issue, Types and Debenture TrusteeDebentures are borrowing, so study them last as a contrast with share capital.

How to prepare Share Capital and Debentures

Treat this chapter as a set of conditions and numbers. Your aim is to recall each rule exactly and apply it to facts.

  1. Read each topic once for the idea, then make a one-page note of conditions, limits and time periods.
  2. Learn the exact wording of key rules. For example, a buy-back must be authorised by the articles, and a special resolution is needed unless it is 10% or less of total paid-up equity capital and free reserves and the Board authorises it.
  3. Build a comparison table on paper for public issue, private placement, rights and bonus, so you can tell them apart quickly.
  4. Practise case studies in three parts: state the provision, apply the facts, give the conclusion.
  5. Solve MCQs by testing each option against the exact condition. Wrong options usually change one number, one resolution type or one time limit.
  6. Revise the numbers and time limits every few days until you can recall them without notes.
  7. Before the exam, write two full answers from memory and check them against the Act.

Common mistakes in Share Capital and Debentures

  • Mixing up the resolution needed for a buy-back.

    Fix: Write both routes: special resolution in general, or Board resolution if the buy-back is 10% or less of total paid-up equity capital and free reserves.

  • Swapping the 25% and 10% limits, or the twice debt ratio.

    Fix: Attach each number to its purpose in your notes: 10% for Board authority, 25% for the overall cap, twice for debt after buy-back.

  • Saying preference shareholders never vote.

    Fix: State the limited voting rights and the two-year unpaid dividend exception.

  • Giving a conclusion without naming the provision.

    Fix: Always follow provision, facts, conclusion, even if the provision is stated in plain words.

  • Quoting section numbers you are unsure of.

    Fix: Use numbers you know well, such as sections 43, 47, 52 and 68, and otherwise state the rule in plain words.

  • Ignoring time limits and filings.

    Fix: Keep a list of periods, such as seven days to destroy bought-back shares and thirty days to file the return, and revise it often.

Last-day revision: Share Capital and Debentures

  • Share capital of a company limited by shares is of two kinds: equity and preference.
  • Equity share capital means all share capital that is not preference share capital.
  • Equity holders vote on every resolution, and a poll vote is in proportion to paid-up equity capital.
  • Preference holders vote only on resolutions directly affecting their rights, winding up, or repayment or reduction of capital.
  • If preference dividend is unpaid for two years or more, that class can vote on all resolutions.
  • Premium on shares goes to the securities premium account, which can be used only for the purposes the Act lists.
  • Buy-back can be from free reserves, securities premium or proceeds of a different kind of share issue.
  • Buy-back needs authority in the articles and a special resolution, unless it is 10% or less and the Board authorises it.
  • Buy-back must be 25% or less of paid-up capital and free reserves, and post buy-back debt must be at most twice paid-up capital and free reserves.
  • Shares must be fully paid, and the buy-back must be completed within one year of the resolution.
  • Bought-back shares must be extinguished and destroyed within seven days of completion.
  • No further issue of the same kind of shares for six months after buy-back, except bonus or discharge of existing obligations; no new offer within one year of the last offer closing.

Share Capital and Debentures practice questions

Share Capital and Debentures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Share Capital and Debentures: frequently asked questions

Is Share Capital and Debentures an important chapter for CA Intermediate?

Yes. It forms a core part of Company Law in Paper 2 and is rule-based, so it suits both MCQs and written case studies. Do not rely on guesses about which topic will appear. Prepare every topic.

How should I answer a buy-back question?

State the sources, the authority needed and the limits. Then check each limit against the figures given, such as 25% of paid-up capital and free reserves and the debt ratio of twice. Finish with a clear conclusion on whether the buy-back is allowed.

Can the securities premium account be used for any purpose?

No. Section 52 allows only listed uses, such as paying up bonus shares, writing off preliminary expenses, writing off issue expenses or commission, providing for premium on redemption, and buy-back under section 68. Learn the list and check each use against it.

Do preference shareholders have voting rights?

Only limited ones. They vote on resolutions that directly affect their rights, and on winding up or repayment or reduction of capital. If the dividend on a class is unpaid for two years or more, that class can vote on all resolutions.