Assignment - Issue of Shares | Crash Course of Accountancy - Class 12 - Commerce PDF Download

Ans. The process of issuing shares in commerce typically involves the following steps: 1. Determine the need for capital: The company assesses its financial requirements and decides to raise funds by issuing shares. 2. Approval from shareholders: The decision to issue shares must be approved by the existing shareholders through a resolution passed in a general meeting. 3. Valuation of shares: The company determines the value of the shares to be issued based on factors such as market conditions, financial performance, and future prospects. 4. Offer shares to existing shareholders: The company offers the new shares to the existing shareholders in proportion to their existing shareholding. This is known as a rights issue. 5. Offer shares to the public: If the existing shareholders do not fully subscribe to the shares, the company may offer the remaining shares to the public through an initial public offering (IPO) or private placement. 6. Allotment of shares: Once the shares are subscribed, the company allots the shares to the shareholders and issues share certificates as evidence of ownership. 7. Listing on stock exchange: If the shares are issued through an IPO, the company applies for listing on a stock exchange, where the shares can be traded. 8. Reporting and compliance: The company must comply with regulatory requirements and periodically report to shareholders and regulatory authorities regarding the issuance of shares.

Ans. Issuing shares in commerce offers several advantages: 1. Capital infusion: By issuing shares, a company can raise funds to finance its growth, expansion, or new projects. This allows the company to avoid taking on debt and maintain a healthy balance sheet. 2. Dilution of risk: When a company issues shares, the ownership of the company is divided among a larger number of shareholders. This helps in diversifying the risk as no single shareholder bears the entire burden of the company's performance. 3. Enhanced market presence: Issuing shares through an IPO can increase the visibility and reputation of the company in the market. It can attract potential investors, customers, and business partners. 4. Access to expertise and networks: By issuing shares, a company can attract investors who bring not only financial resources but also expertise and industry networks. This can help the company in terms of guidance, mentorship, and business opportunities. 5. Increased liquidity: Shares that are listed on a stock exchange can be easily traded, providing shareholders with the opportunity to convert their investments into cash whenever needed. This enhances the liquidity of the company's shares.

Ans. In commerce, companies can issue different types of shares, including: 1. Equity shares: These are the most common type of shares issued by companies. Equity shareholders have voting rights and are entitled to a share in the profits of the company. They bear the maximum risk and enjoy the highest potential for returns. 2. Preference shares: Preference shareholders have a preference over equity shareholders in terms of dividend payments and return of capital in case of liquidation. They do not usually have voting rights but receive a fixed dividend before equity shareholders. 3. Cumulative preference shares: These shares carry the right to accumulate unpaid dividends in case the company is unable to pay dividends in a particular year. The accumulated dividends must be paid before any dividend is paid to equity shareholders. 4. Redeemable shares: Redeemable shares are those that can be bought back by the company at a future date or upon certain conditions. This provides flexibility to the company in managing its share capital. 5. Convertible shares: Convertible shares can be converted into a different class of shares, usually equity shares, at the option of the shareholder. This allows investors to participate in potential future growth of the company.

Ans. Issuing shares in commerce is subject to various legal requirements and regulations. Some of the key legal requirements include: 1. Company law compliance: The company must comply with the provisions of the Companies Act or equivalent legislation in the jurisdiction where it is incorporated. This includes obtaining necessary approvals, maintaining proper documentation, and following prescribed procedures for issuing shares. 2. Disclosure requirements: The company must make necessary disclosures to shareholders and regulatory authorities regarding the issuance of shares. This includes providing information about the purpose of issuing shares, the terms and conditions, and any risks associated with the investment. 3. Shareholder approval: The issuance of shares must be approved by the existing shareholders through a resolution passed in a general meeting. The company must provide all relevant information to the shareholders to enable them to make an informed decision. 4. Regulatory filings: The company must file necessary documents and forms with the regulatory authorities, such as the Securities and Exchange Commission, to comply with securities laws and regulations. This includes filing a prospectus or offering memorandum in case of a public offering. 5. Compliance with listing rules: If the shares are intended to be listed on a stock exchange, the company must comply with the listing rules and requirements of the exchange. This includes meeting the minimum capitalization, corporate governance, and financial reporting standards.

Ans. While issuing shares in commerce offers several advantages, there are also risks involved. Some of the risks associated with issuing shares include: 1. Dilution of ownership: By issuing shares, the ownership of the company gets diluted as new shareholders come on board. Existing shareholders may see their percentage ownership decrease, which can impact their control and decision-making power. 2. Market volatility: The value of shares can be subject to market fluctuations and investor sentiment. If the market conditions are unfavorable, the company may have to issue shares at a lower price, resulting in lower funds raised or dilution of equity. 3. Regulatory compliance: Issuing shares in commerce involves complying with various legal and regulatory requirements. Failure to comply with these requirements can result in penalties, legal disputes, or reputational damage. 4. Shareholder expectations: By issuing shares, the company takes on additional shareholders who expect a return on their investment. The company must meet these expectations by generating profits and distributing dividends, which may put pressure on the company's financial performance. 5. Loss of confidentiality: When a company issues shares through an IPO, it becomes a public company and is required to disclose financial and non-financial information to the public. This may result in loss of confidentiality and competitive advantage.