Tag: equity and preference shares

Questions Related to equity and preference shares

More than 50% of the shares are held by Company B in Company 
A, thus _________________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. B is the holing company of A

  2. B is a subsidiary company of A

  3. B is both A & B

  4. None of the above

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Correct Option: C
Explanation:

More than 50% of the shares are held by Company B in Company. 
A, thus: B is both the holding company as well as a subsidiary company.

A closely held company is:

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. When most of the controlling management and shareholders are same.

  2. When only are person has all the shares

  3. A registration of companies

  4. Both A & B

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Correct Option: A
Explanation:

A closely held corporation is any company that has only a limited number of shareholders; its stock is exchanged only infrequently but is often listed on public exchanges. Most of the controlling management and shareholders are same. 

A shareholder who can vote conditionally is a/an __________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. equity shareholder

  2. preference shareholder

  3. member

  4. none of the above

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Correct Option: B
Explanation:
The preference shareholders enjoy a preferential position over equity shareholders in two ways, receiving the fixed rate of dividend, receiving their capital after claims of the company's creditors is settled. Preference shareholders generally do not enjoy any voting rights but can vote conditionally.

Preference shares are those which carry the preferential as to ___________________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. The payment of dividend at a fixed rate

  2. The return of capital on winding up of the company

  3. Both (A) & (B)

  4. Either (A) or (B)

Show answer
Correct Option: C
Explanation:
The capital raised by issue of preference shares is called preference share capital. Preference share holders enjoy preferential position over equity in two ways i.e the payment of dividend at a fixed rate & the return of capital on liquidation of company.

Which of the following can be treated as type of shares?

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Equity

  2. Preference share

  3. Both (A) & (B)

  4. None of the above

Show answer
Correct Option: C
Explanation:
A business can raise funds from various sources. Each of the source has unique characteristics, raising through shares is a type of source of funds. The capital obtained by issue of shares is known as share capital. Equity shares and preference shares are treated as types of shares. Equity shares are owner's share capital 

Which of the following right may be given to preference shareholders if provided by Articles?

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. To participate in the surplus profits remaining after payment of equity dividend

  2. To receive arrears of dividend at the time of winding up

  3. To receive premium on redemption of preference shares

  4. All of the above

Show answer
Correct Option: D
Explanation:

If provided by the Articles of Association, the following rights may be given to the shareholders of preferential shares:
To participate in the surplus profits remaining after payment of equity dividend

To receive arrears of dividend at the time of liquidation
To receive premium on redemption of preference shares.

________means the appropriation of a certain number of shares to an applicant who has applied shares in public issue by the board of directors in consultation with stock exchange.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Allotment

  2. Application

  3. Acceptance

  4. Final call

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Correct Option: A
Explanation:
The allotment of shares is the issuing of new shares to the existing shareholders or to third parties. The Directors of a Company may allot shares in the capital of the Company, if they have the authority to do so. Some examples where allotment of shares may be used are as follows:
• To raise money for the Company
• To introduce new investors such as BES investors
• To allow Enterprise Ireland or Enterprise Board Investors
• To convert loans to share capital
• To introduce a golden share
• To put in place a group structure
• To fund a redemption of shares
• To implement a bonus issue of shares
Directors may not allot shares unless they have the power to do so. The Directors power to allot shares expires 5 years from the date of incorporation or 5 years from the last renewal of the power to allot. If the authority to allot shares has not been renewed in the last 5 years then it should be renewed prior to any proposed allotment. This can be renewed by the Members passing an Ordinary Resolution prior to the allotment.
A company must have sufficient unissued authorised share capital before new shares may be allotted by the Directors. If the Company does not have sufficient unissued share capital or is setting up a new share class this must be approved by the members passing a special resolution.
The Memorandum and Articles of Association and any shareholder agreements should be reviewed for regulations on pre-emption rights, unissued share capital and other provisions that may affect the allotment of shares. The shares may be allotted for cash, non-cash and may be allotted at a premium.

Which of the following rights may be given to preference shareholder if provided by Articles?

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. To participate in the surplus remaining after the equity shares are redeemed in winding up.

  2. To participate in the surplus profits remaining after payment of equity dividend.

  3. To receive arrears of dividend at the time of winding up.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

If provided by the Articles of Association, the following rights may be given to the shareholders of preferential shares are:
To participate in the surplus profits remaining after payment of equity dividend

To receive arrears of dividend at the time of liquidation
To receive premium on redemption of preference shares.

When shares are issued at a price less than the face value, they are said to be issued at __________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Discount

  2. Premium

  3. Par

  4. None of above

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Correct Option: A
Explanation:
Issue of shares at discount: When the shares are issued at a price lower than the face value, they are said to be issued at discount.
Any company could not offer the shares at discount when
• It is a new company
• It is a new class of shares even though of an old company
The discount on issue of shares is treated as a loss of capital nature.
For e.g.
Let the share is issued at Rs. 90 then it is called that share is issued at the discount of Rs 10 (Rs 100 –Rs. 90).

The premium on issue of shares must be credited to a separate account 

called ________________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Share Premium Account

  2. Securities Premium Account

  3. Discount on Issue of Shares

  4. Securities Profits Account

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Correct Option: B
Explanation:
Securities Premium Account:-
When shares are issued at an amount more than the nominal value or par value, it is called shares issued at premium. The premium amount thus received is credited to a separate account called ‘Securities Premium Account’ and is shown on the liabilities side of the company’s balance sheet under the head ‘Reserves and Surpluses’.