Q.6 Justify the following statements.

1. Fixed capital stays in the business almost permanently

Ans:
i. Fixed capital is the capital which is used to purchase fixed assets of the business.
ii. These fixed assets are used for a longer period of time and are not meant for resale.
iii. In other words, fixed capital refers to the capital invested for acquiring fixed assets.
iv. Examples of fixed capital are capital used for purchasing land and building, furniture, plant and machinery etc.
Hence, fixed capital stays in the business almost permanently.

2. Equity shareholders are real owners and controllers of company

Ans:
i. Equity shareholders participate in the general meetings and management of their company.
ii. They are allowed to vote on all matters discussed at the general meeting.
iii. They elect their representatives to manage the company.
iv. The equity shares do not enjoy preference for dividend. Also, they do not have priority for repayment of capital at the
time of winding up of the company.
v. Equity shareholders own the company and bear ultimate risk associated with the ownership.
vi If the company is successful, they enjoy great financial rewards while if the company fails, the risk falls mainly on them.
Hence, equity shareholders are real owners and controllers of company.

3. Bond holder is creditor of the company.

Ans:
i. A bond is an interest-bearing certificate issued by the government or business firm, promising to pay the holder a specific
sum at a specified date.
ii.In other words, bond is a debt security or a formal contract to repay borrowed money with interest.
iii. Thus, a company borrows money and issues bonds as an evidence of debt.
iv. Interest is payable on bonds at fixed interval or on maturity of bonds.
v. The holder of bond is a lender to the institution. Hence, bond holder is a creditor of the company.

4. Equity share capital is risk capital.

Ans:
i.Equity shareholders own the company and bear ultimate risk associated with the ownership.
ii. The equity shares do not enjoy preference for dividend. Also, they do not have priority for repayment of capital at the
time of winding up of the company.
iii. Equity shareholders do not carry any fixed commitment of dividend. They are paid dividend at the rate recommended by
Board of Directors.
iv. If there is no profit, no dividend will be payable. Similarly, if there is less profit, lesser dividend Will be paid.
v. The fortune of equity shareholders is tied up with the ups and downs of the company.
vi. They are described as ‘shock absorbers’ when company has financial crisis.
Hence, equity share capital is risk capital.
5. The Board of Directors can refuse transfer of shares.
Ans:

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Transfer of shares means voluntary transfer of shares by a member of a company in favour of another person. A member
has to apply to the company for transfer of shares by filling the ‘Instrument of Transfer’ and submit the share certificate
along with the required transfer fees. The board of directors may refuse registering the transfer under following conditions:
i. When the provisions for transfer of shares as given in the Articles of Association is not fulfilled by the member.
ii. When the instrument of transfer is not as per the rules prescribed under the Companies Act.
iii. When the Instrument is not accompanied by the Share Certificate.
iv. When the company has a lien on the shares to be transferred.
Hence, the board of directors can refuse transfer of shares.

6. A company has to create charge on its assets for issuing secured debentures.
Ans:
i.If a company is issuing secured debentures, it has to fulfil the provisions as per Companies (Share Capital and Debentures)
Rules, 2014 (i.e. Rule 18).
ii. As per its provisions, company has to create a charge on the assets of the company or its subsidiary company or holding
company.
iii. The value of charge should be adequate to cover the entire value of debentures issued and interest to be paid on it.
iv. If a government company issues secured debentures which has central or state government’s guarantee, then it need
not create any charge on its assets.
Hence, a company has to create charge on its assets for issuing secured debentures.

7. All companies cannot accept deposits from public.

Ans:
i. A company accepts deposits from the public to raise funds for the company.
ii. There are certain regulations regarding accepting deposits from the public.
iii. Only eligible companies and government companies can accept deposits from public.
iv. Private companies and public companies (other than eligible companies) can accept deposits from its members or
directors but not the public.
Hence, all companies cannot accept deposits from public.

8. There is a limit or restriction on the amount that a company can collect as Deposits.
Ans:
i. A private company can accept deposits from its members or directors or relatives of directors not more than 100% of its
aggregate of paid-up share capital and free reserves.
ii. Public company (other than eligible company) cannot accept fresh deposit from members if the amount of such deposits
together with the previous deposits exceeds 25% of the aggregate of the paid-up share capital and free reserves of the
company.
iii. Government company can accept deposits from public not exceeding 35% of the paid-up share capital and free reserves
of the company.
iv. A public company cannot accept fresh deposits from its members if the amount of such deposits together with the
previous deposits exceeds 10% of aggregate of paid-up share capital and free reserves and 25% of aggregate of paid-up
share capital and free reserves in case of deposits from public.
Hence, there is a limit or restriction on the amount that a company can collect as Deposits.
9. Depository system results in reduced time, cost and efforts.
Ans:
i. Under depository system, securities are held in electronic form.
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ii. The transfer and settlement of securities are done electronically.
iii. The efforts that were required in filling transfer forms and lodging the documents are eliminated in depository system.
iv. Processing time in transfer of securities is reduced and neither the security is nor the cash is tied / held up for
unnecessarily long time.
v. Further stamp Duty levied on transfer of physical shares is also not applicable. So the cost involved is also eliminated.
vi. Even at the company end, costs, efforts and time involved in printing and distribution of certificates in cases of new
issues, bonus, transfers, etc. is saved.
Hence, the depository system results in reduced time, cost and efforts.

10. Electronic holding of securities is safer than physical holding.

Ans:
i. Under depository system, securities are held in electronic form.
ii. Physical certificates cannot be lost, damaged, torn, stolen, misplaced during transit etc.
iii. Delivering certificates which are torn, fake etc. creates problems in buying and selling of securities.
iv. Under depository system, securities are held in electronic form.
v. The transfer and settlement of securities are done electronically.
vi. It leads to elimination of storage and handling of certificates.
vii. So, all risks associated with physical holding are eliminated by electronic holding of securities.
Hence, electronic holding of securities is safer than physical holding.

11. Dividend is paid out of profits of the company.

Ans:
i. Shareholders invest in companies shares with aim of earning returns out of the profits of the company
ii. The shareholders get dividend as a return on their investment.
iii. The shareholder being the owner of the company is entitled to a share in the company’s profits.
iv. Dividend is a share in the distributable profits of the company. Hence, dividend is paid out of the profits of the company.
Hence, dividend is paid out of the profits of the company.

12. Interim dividend cannot be paid out of free reserves.

Ans:
i. Dividend declared by the board of directors between two AGMs is called interim dividend.
ii. Interim dividend is paid in the middle of the accounting year.
iii.It is paid before the finalisation of annual accounts for the year.
iv. Free results are the results available for distribution of profits as per latest audited balance sheet of the company.
v. It is declared out of profits of the current accounting year.
Hence, interim dividend cannot be paid out of free reserves.

13. Approval of members is not needed for Interim Dividend.

Ans:
i. Dividend declared by the board of directors between two AGMs is called interim dividend.
ii. Interim dividend is paid in the middle of accounting year. i.e. before the finalization of annual accounts for the year.
iii. Articles of Association of the company must authorize the board of directors to declare interim dividend.
iv. The board meeting has to pass a resolution for declaring the interim dividend
Hence, the approval of members is not needed for interim dividend.

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14. Financial markets acts as link between investor and borrower.
Ans:
i. financial Market provides a platform where both, buyers and sellers can find each other easily.
ii. Investors who have savings are linked with entrepreneurial borrowers that require investment.
iii. As a result, the idle funds in the hands of investors can be productively used by corporates.
iv. This market enables investors to invest their saving according to their choices and risk assessment.
Hence, financial markets act as link between investor and borrower.

15. Capital market is useful for corporate sector.

Ans:
i. Capital market is the market for borrowing and lending long-term capital required by business enterprises.
ii. The capital market is a core of a country's financial system as it helps in the mobilisation of resources.
iii. Through this market, corporates, industrial organisations, financial institutions access long-term funds from both
domestic as well as foreign markets.
iv. Capital market also contribute to capital formation in the economy.
Hence, capital market is useful for corporate sector.

16. The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India.
Ans:
i.SEBI was set up with the objective of promoting the securities market, protecting the interest of the investors in securities
market and to regulate the securities market.
ii. SEBI issues rules and regulation which are to be followed by the issuers of securities, the intermediaries and the investors.
iii. It is the regulator of all stock exchanges in India.
iv. SEBI also registers and regulates the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue,
trustee of trust deeds, registrars to an issue, merchants, bankers, underwriters, venture capital funds, mutual funds,
depositories and other such intermediaries who may be associated with securities market.
Hence, the Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India.

17. Stock exchanges work for the growth of the Indian economy.
Ans:
i. Stock Exchange is a place where various types of securities are purchased and sold.
ii. securities of various companies are traded on the stock exchange.
iii. Investors invest in those companies which give good return on investment
iv. Hence, companies also try to invest in the most productive investment projects so as to give good return on investors’
money.
v. This leads to capital formation and economic growth.
Hence, stock exchanges work for the growth of the Indian economy.

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