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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Under the Companies (Share Capital and Debentures) Rules, 2014, which statement about convertible debentures is correct for a company issuing them?

A company may issue debentures convertible into shares only if the terms of issue, including conversion, are approved beforehand by a special resolution passed in general meeting. Deciding conversion terms after allotment is not permitted, and interest before conversion is allowed.

  1. AThe terms of issue including conversion must be approved by a special resolution before issueCorrect
  2. BDebentures convertible into shares can be issued only with unanimous consent of all debenture holders
  3. CConversion terms may be decided by the company after allotment without any prior approval
  4. DConvertible debentures cannot carry any interest before conversion

Explanation

Section 62(3) requires that debentures carrying a right to convert into shares, wholly or partly, be issued only with the approval of a special resolution passed in general meeting. The terms must be approved before issue, so deciding later is wrong. There is no bar on paying interest before conversion.

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