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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Priya holds 500 equity shares in Zenith Ltd, which has voting rights in proportion to paid-up capital. Zenith wishes to issue further shares to its existing shareholders in proportion to their holdings. Which statement about the further issue is correct?

Existing shareholders must first be offered the further shares as a rights issue, in proportion to their holdings, and the offer must stay open for the prescribed period. Priya may also renounce her right unless the articles forbid it. Direct allotment to outsiders would breach the rights provisions.

  1. AExisting shareholders must first be offered the shares through a rights offer, and the offer must remain open for the prescribed periodCorrect
  2. BThe company may allot the shares to outsiders directly without offering them to existing shareholders
  3. CPriya has no right to renounce the offer in favour of another person
  4. DThe offer must be left open for exactly 7 days and cannot be extended

Explanation

On a further issue of shares, the company must first offer them to existing equity shareholders in proportion to their holdings through a notice specifying the number of shares and a period of not less than 15 days and not more than 30 days. The shareholder may renounce the right in favour of another person unless the articles say otherwise. Hence only the first option is correct.

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