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CMA Intermediate · Corporate Accounting and Auditing · Underwriting of Securities

Under the Companies Act, 2013 and the rules made under it, the maximum underwriting commission payable on shares is capped at which of the following, provided the articles authorise it and it is disclosed in the prospectus?

The maximum underwriting commission on shares is 5% of the issue price, and for debentures it is 3%. The payment must be authorised by the articles, the rate must be disclosed in the prospectus, and it cannot exceed the prescribed ceiling.

  1. A5% of the issue price of sharesCorrect
  2. B2.5% of the issue price of shares
  3. C10% of the issue price of shares
  4. D7.5% of the issue price of shares

Explanation

The Companies (Prospectus and Allotment of Securities) Rules permit commission up to 5% of the price at which shares are issued, and up to 3% in case of debentures. The 2.5% figure is a wrong carry-over and the 10% and 7.5% figures are not prescribed limits for shares.

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