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Law of diminishing returns states that as more and more of the variable factor is combined with the fixed factor, a stage must ultimately come when marginal product (and eventually average product) of the variable factor starts declining.

The payment of interest on debentures is a charge on the profits of the company.

True

Debenture is a part of owned capital.

False

Debenture is written instrument acknowledging a debt under the common seal of the company.

True

Equity share holders are : (b) owners 

These are shares issued by a company to its directors or employees at a discount or for consideration other than cash. It is one of the modes of making share-based payments to employees. It is issued in recognition of their valuable contribution to the prosperity of the company.

E-business offers several benefits to business firms and consumers. They are:

1. E-business contributes to better customer satisfaction.

2. E-business helps business firms to enter new and remote markets. 

3. E-business allows firms to select the best Suppliers regardless of their geographical location and to sell to global market. 

4. E-business has the advantage of speed. In e-business, information can be exchanged at the click of a mouse. 

5. E-business’makes possible working round the clock and around the world.

E-business is not free from drawbacks. It suffers from the following limitations:

1. Online business also suffers from the risk of hacking and virus. 

2. E-business suffers from human resistance Generally, people oppose new technology and new mode of doing business due to the fear of insecurity and stress.

3. The warmth of inter-personal interaction is lacking in e-business. That is, e-business suffers from limited personal touch. So, e-buSiness is less suitable for products, such as garments, toiletries, etc. 

4. E-business also suffers from ethical problems. Many firms use an electronic eye to keep track of the e-mail account, computer files and’websites used by their employees. This implies and attack on the privacy of the staff. 

5. In e-business, information can flow at the click of mouse. But the physical delivery of the product takes time. Further, the user may become frustrated when it take along time to open the website due to technical faults.

In partnership firm the liability of partners is unlimited.

Explanation: 

Unlimited liability imply that, if a business’s assets are not sufficient to pay the business liabilities, then personal assets of the partners can be used to pay off the debts. Thus, in partnership firm the liability of partners is said to be unlimited.

The partners can re-distribute the share of the dead partner among themselves or admit a new partner and keep the partnership alive.

Correct option is  (b) one man one vote

A partner in partnership firm who takes active participation in day to day work- Active Partner. 

Explanation: 

Active partners are the one who contribute capital and take part in the management of the business. They share profits and losses and have unlimited liability.

Correct option is  (b) unlimited

Correct option is  (a) agent

Correct option: (c) Rights Issue

Every company issuing shares has to follow rules or general principles given by the Companies Act, 2013 as follows:

• Proper Authority: The Board of Directors or the allotment committee set up by the Board has the authority to allot shares.
• Allotment must be against application only: A Company can allot shares only if it has received a written application for shares from the applicant. Allotment of shares cannot take place on the basis of an oral request.
• Reasonable time: As per the Act, allotment shall be done within 60 days of receipt of application money. Allotment can be made from the fifth day from the date of issue of prospectus.
• Absolute and Unconditional allotment: Shares should be allotted on the same terms as stated in the prospectus and application form. No change in terms of allotment or new conditions can be added at the time of allotment.
• Communication: Company has to inform the applicant that shares have been allotted to him by sending a letter of allotment or allotment advice. The letter gives details of a number of shares allotted, amount of Allotment Money to be paid etc.
• Allotment should not be in Contravention (Violation) of any other laws: A company cannot allot shares by violating or contradicting any other existing laws e.g., shares cannot be allotted to a minor, of a country where a company operates its business.

Correct option: (a) Share capital

i. False

ii. True

iii. False

iv. True

v. True

Correct option: (c) Allotment

Correct option: (a) Share Certificate

If a shareholder fails to pay calls on shares within a certain period company can forfeit shares.

Authorized Capital is mentioned in the capital clause of the Memorandum of Association.

1. Authorized capital is the maximum capital that a company can raise by issuing shares.

2. Under Book Building Method the price of shares is fixed through a bidding process.

3. IPO refers to the offering of shares to the public for the first time.

4. Only Partly paid-up shares can be forfeited.

5. Bonus shares are offered to existing shareholders of a company.

6. The company enters into an underwriting agreement with the underwriters.

7. Letter of Regret is sent to applicants when no shares are allotted to them.

8. FPO refers to offering shares to the public for the second time.

9. A duplicate share certificate must be issued within three months from the date of application.

10  Call money can not exceed 25% of the nominal value of shares.

• A company can raise funds by offering shares to its existing permanent employees by ESOS Scheme.
• Under this scheme permanent employees Directors or officers of the company are offered the benefit or right to purchase the equity shares of the company at a future date with a pre-determined price.
• ESOS is followed by the company to encourage its employees and to give certain benefits to them.
• Through ESOS, the company can retain its good and talented employees.
• A company may offer the shares directly to the employees or through an Employee Welfare Trust.
• It is helpful to the company to generate goodwill in the market also.

Correct option: (c) ESOS

Correct option: (b) One month

A Company can issue a duplicate share certificate in the following circumstances:

• If original share certificate has been defaced, mutilated or tom and is surrendered to the company.
• If it has been proved by the holder that the original share certificate is lost or destroyed.
• In case of loss of share certificate, the company puts up a notice in the newspaper to announce the loss of the share certificate.
• If the company does not get any response from the public within the specified time, then the company issues a duplicate share certificate.
• Duplicate share certificate should be issued within three months from the date of application.
• Duplicate share certificate should be issued within 3 months from the date of application with bold ‘duplicate share certificate’ marked on it.

Public issue or offer means offering the shares to the public. The company invites the public to subscribe to its shares by issuing a prospectus.

Secretary has to file a ‘Return of Allotment’ with the Registrar of Companies within 30 days of allotment of shares.

• Paid-up capital is the amount of money a company has received from shareholders in exchange for shares.
• It is the total amount of money paid up by the shareholders when the company has called up or demanded them to pay.
• The paid-up capital can be equal to or less than the authorized capital.

• Whenever a company issues shares, the company may ask its shareholder to pay value of shares in installment which is known as calls on shares.
• Company can demand part or full amount of balance amount of unpaid shares.
• Beside the application money and allotment money if a company demands the balance unpaid amount on shares it is called as calls on shares.
• The unpaid amount on partly paid-up shares is a liability of the shareholders.
• Calls on shares can be made by the Board of Directors in the interest of the company.
• To make a call on shares, company has to send a call letter or notice to the shareholders. This notice is drafted by a secretary and issued in the name of the board of directors. The company gives them a minimum of 14 days notice to pay calls money to the Company’s Banker.
• No call can be made for more than 25% of the nominal value of shares.

(a) Allotment of shares 

(b) Calls on shares 

(c) forfeiture of shares

If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending many reminders the company may forfeit its shares. Thus forfeiture of shares means cancellation of shares.

Correct option: (a) forfeit

Under the Book Building method, the issue price of shares is fixed through a bidding process.

A Share certificate refers to a document which is issued by a company evidencing that a person named in such certificate is the owner of the shares of the company stated in the share certificate.

Share certificate has to be issued under the common seal of the company. It should be issued within 2 months from the date of allotment against the allotment letter.

Contents of Share Certificate: Share Certificate should be in Form SH – 1 as prescribed under Companies (Share Capital and Debenture) Rules 2014.

• Name of the company with Registered office address
• Folio Number
• Share Certificate Number
• Name of Member
• Nature of share number of shares and a distinctive number of shares.
• Amount paid on shares
• Common seal, if any, and signature of two directors and company secretary.

Secretary should issue share certificate within two months of allotment of shares.

• Subscribed share capital is that part of issued share capital for which a company has positively received a subscription from the investor.
• It is a part of Issued Capital that has been subscribed by investors or purchased by the general public.

• Bonus Shares are fully paid shares issued free of cost to the existing equity shareholders.
• According to Companies Act 2013, every company has to follow certain provisions to issue Bonus Shares.

Following are the provisions related to Bonus Issue:

• A company can issue Bonus Shares only out of
• Free reserves or
• Securities Premium Account
• Capital Redemption Reserve Account
• A company cannot issue Bonus Shares only out of Reserves credited by the Revaluation of Assets.
• It also cannot issue Bonus Shares instead of paying dividend.
• Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
• Bonus shares are fully paid up shares.
• Shareholders cannot renounce i.e give away their Bonus Shares to another person.
• There is no minimum subscription to be collected.

• When a company offers its securities to a select group of persons not exceeding 200, it is called a private placement.
• In private placement, the company offers its securities only to identified person and not to the general public.
• Statement in lieu of prospectus should be filed by the company with ROC before making a private placement.
• The Board of directors selects or identify the persons to be included in the select group. They can be mutual funds, Institutional Investors etc.
• Company has to issue private placement offer letter along with the application.
• The shares offered can be fully or partly paid up and the consideration should be paid by cheque, Demand Draft, etc. but not by cash.
• Right to renunciation is not given to applicants under private placement. The company has to get approval of shareholders through a special resolution.
• A company can make private placement through a rights issue and preferential allotment.

If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending many reminders the company may forfeit his shares. Thus forfeiture of shares means cancellation of shares.

Effects of Forfeiture:

• Cessation of Membership: On forfeiture, a member ceases to be a member of a company and loses all membership rights. The member’s name is removed from the Register of Members.
• Liability of Member: A member is liable for unpaid calls even after forfeiture of shares. The liability ceases only when the company reissues the forfeited shares.
• Liquidation of Company: If a company goes in for liquidation within one year of forfeiture of shares, the member whose shares have been forfeited is liable to pay the calls as a past member.

An employee stock option plan is an employee benefits scheme under which the company encourages its employees to acquire ownership in the form of shares. Under this scheme, permanent employees, Directors or Officers of the Company or its holding company or subsidiary company are offered the benefit or right to purchase the equity shares of the company at a future date at a predetermined price. Generally these shares are issued at discount. The shares are offered at a price lesser than their market price.

Following are the provisions related to ESOS:

• A company may offer the shares directly to the employees or through an Employee Welfare Trust.
• The shares are offered at a price lesser than their market price.
• There is a minimum vesting period of one year.
• Company specifies the lock-in period. It is a minimum of one year between grant of option and vesting.
• Shares issued under this scheme enjoys dividend or voting rights only after buying by employees.
• Company has to get the approval of shareholders through a special resolution to issue ESOS.
• Employee neither transfer his option to any other person nor pledge/mortgage the shares issued under ESOS.
• Company has to set up a compensation committee to administer ESOS.
• The company has to fulfil the provision of SEBI (Share Based Employee Benefits) Regulations, 2014.

• Whenever a company issue shares, the company may ask shareholders to pay the value of shares in installment which is known as calls on shares. 
• The company can demand part or full amount of the balance amount of unpaid shares.

The transferor and Transferee are the two parties involved in the transfer of shares.

• When a company wants to issue further capital it can issue shares to its existing equity shareholders which are called Rights Issue.
• According to the Companies Act, 2013 company has to fulfill certain provisions for making a Rights Issue.
• the provisions are
• Rights shares are sold to the existing shareholders at a price that is lesser than its market price.
• A company has to send a ‘Letter of offer’ to the existing shareholders at the time of issuing Rights Shares.
• The letter of offer shall mention 
• The number of shares offered. 
• The period of offer i.e., offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of offer.
• The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
• If a shareholder does not respond to the Rights Issue offer within a given time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new Investors.

Minimum subscription means a minimum amount decided by the ROC which should be build-up by the company by issuing securities to the general public. If the company failed in minimum subscription then it has to return the entire amount back to the applicants.

When a company offers its securities to a selected group of persons not exceeding 200, it is called private placement. Here securities are not offered to the general public.

The importance of accounting is: 

1. Systematic records: All the transactions of an enterprise which are financial in nature are recorded in a systematic way in the books of accounts. 

2. Preparation of financial statements: Results of business operations and the financial position of the concern can be ascertained from accounting periodically through the preparation of financial statements. 

3. Assessment of progress: Analysis and interpretation of financial data can be done to assess the progress made in different areas and to identify the areas of weaknesses. 

4. Aid to decision making: Management of a firm has to make routine and strategic decisions while discharging its functions. 

5. Satisfies legal requirements: Various legal requirements like maintenance of provident fund (PF) for employees, Tax deducted at source (TOS), filing of tax returns and properly fulfilled with the help of accounting. 

6. Information to interested groups: Accounting supplies appropriate information to different interested groups like owners, management, creditors, employees, financial institutions, tax authorities and the Government. 

7. Legal evidence: Accounting records are generally accepted as evidence in courts of law and other legal authorities in the settlement of disputes. 

8. Computation of tax: Accounting records are the basic source for computation and settlement of income tax and other taxes. 

9. Settlement during mergers: When two or more business units decide to merge, accounting records provide information for deciding the terms of merger and any compensation payable as a consequence of merges.

The main branches of accounting are: 

1. Financial Accounting: It involves recording of financial transactions and events.

2. Cost Accounting: It involves the collection, recording, classification and appropriate allocation of expenditure for the determination of the costs of products or services and for the presentation of data for the purpose of cost control and managerial decision making.

3. Management Accounting: It is concerned with the presentation of accounting information in such a way as to assist management in decision making and in the day – to – day operations of an enterprise.

4. Social Responsibility Accounting: It is concerned with presentation of accounting information by business entities and other organisations from the view point of the society by showing the social costs incurred such as environmental pollution by the enterprise and social benefits such as infrastructure development and employment opportunities created by them.

5. It is concerned with identification, quantification and reporting of investments made in human resources of an enterprise.

• Board of Directors can refuse transfer of shares as they have authority to refuse registration of transfer of shares.
• A notice of refusal of transfer is to be sent by the board to a member within 30 days from the date on which the instrument of transfer is received by the company.
• The board may refuse to register the transfer under following conditions.
• When the provisions for transfer of shares as given in the Articles of Association are not fulfilled by the member.
• When the instrument of transfer is not as per the rules prescribed under the Companies Act.
• When the instrument is not accompanied by the share certificate.
• When the company has a lien on the shares to be transferred.

• Board of Directors can refuse transfer of shares as they have authority to refuse registration of transfer of shares.
• A notice of refusal of transfer is to be sent by the board to a member within 30 days from the date on which the instrument of transfer is received by the company.
• The board may refuse to register the transfer under the following conditions.
• When the provisions for transfer of shares as given in the Articles of Association is not fulfilled by the member.
• When the instrument of transfer is not as per the rules prescribed under the Companies Act.
• When the instrument is not accompanied by the share certificate.
• When the company has a lien on the shares to be transferred.