COMPANY

LAW
ASSIGNMENT-2

NAME :- SHIVAM SINGH

COURSE :- B.COM PROGRAM (A)
ROLLNO. :- 23/40033
 Assignment -2
1. List the purpose for which securities premium account may be used as per
Companies Act. (6)
 According to the Companies Act, the securities premium account
may be utilized for the following purposes:

1. **Issue of Fully Paid Bonus Shares**: Securities premium can be

utilized for issuing fully paid bonus shares to existing shareholders
without collecting any additional consideration from them. This helps
in rewarding shareholders without requiring them to make further
investments.

2. **Writing off Preliminary Expenses**: Securities premium can be used

to write off preliminary expenses incurred by the company, such as
incorporation expenses, expenses related to the issue of shares, or other
costs associated with the formation of the company.

3. **Writing off Debenture Issue Expenses**: Companies can utilize

securities premium to write off expenses incurred in relation to the issue
of debentures, such as underwriting commission, brokerage, printing,
and advertising expenses.

4. **Providing for the Premium on Redemption of Preference Shares or

Debentures**: Securities premium can also be used to provide for the
premium payable on the redemption of preference shares or
debentures, thereby helping the company in meeting its redemption
obligations without affecting its profits.

1. **Purchase of Its Own Shares or Debentures**: Companies may use

securities premium to purchase its own shares or debentures from the
market, subject to compliance with applicable regulations and provisions
of the Companies Act.
 These purposes ensure that the securities premium account is used for
legitimate corporate purposes that benefit the company and its
stakeholders.
2. A company cannot buyback its own shares. Explain. Are there any exceptions
to it? (7)
 A company cannot buy back its own shares without proper
authorization and compliance with legal requirements. There are
several reasons for this restriction:

1. **Protection of Shareholder Interests**: Allowing a company to buy

back its own shares without regulation could potentially harm the
interests of shareholders, especially minority shareholders. Unrestricted
buybacks could lead to manipulation of stock prices, dilution of
ownership, and unfair advantages for certain shareholders.

2. **Preservation of Capital**: The prohibition on unrestricted buybacks

helps to preserve the company's capital by preventing reckless spending
on share repurchases that may not benefit the company or its
shareholders in the long run.

3. **Maintaining Liquidity**: Allowing unchecked buybacks could

reduce the liquidity of the company's shares in the market, making it
more difficult for investors to buy and sell shares at fair prices.

However, there are exceptions to this prohibition under certain

circumstances, typically with regulatory oversight and shareholder
approval:

1. **Buyback through Special Resolution**: Companies may buy back their

own shares subject to approval by a special resolution passed by
shareholders in a general meeting. This ensures that the decision to buy
back shares is made with the consent of the shareholders, who are the
ultimate owners of the company.
2. **Compliance with Legal Requirements**: Companies must comply with
legal requirements and regulations governing share buybacks, including
those outlined in the Companies Act or other relevant laws in their
jurisdiction.

3. **Financial Solvency**: Companies are generally permitted to buy back

shares only if they are financially solvent and have sufficient distributable
reserves to fund the buyback. This requirement helps to ensure that
buybacks do not jeopardize the company's financial stability or ability to
meet its obligations.

4. **Limitations on Buyback Amount**: There are often limits on the

amount of shares a company can buy back, both in terms of the total
value and the percentage of its share capital. These limits help to prevent
excessive buybacks that could harm the company's financial health.

In summary, while companies are generally prohibited from buying back

their own shares without proper authorization and compliance, there are
exceptions under certain circumstances, with regulatory oversight and
shareholder approval. These exceptions aim to balance the interests of the
company, its shareholders, and the broader market.

3. What is Bonus Issue? Explain the provisions of Companies Act on

issue of Bonus Shares. (7)
 A bonus issue, also known as a bonus share issue or scrip issue, is
an issuance of additional shares to existing shareholders of a
company without any additional payment from them. The bonus
shares are issued to shareholders in proportion to their existing
shareholding, typically based on the number of shares they
already own.
  Provisions of the Companies Act regarding the issue of bonus
shares include:
1. **Authorization**: The Companies Act allows companies to issue
bonus shares, subject to authorization by the company's articles of
association.

2. **Source of Issue**: Bonus shares can only be issued out of the

company's free reserves, securities premium account, or capital
redemption reserve account, subject to compliance with applicable
provisions of the Companies Act.

3. **Approval**: The issue of bonus shares must be approved by the

company's board of directors, who must ensure that the company has
sufficient reserves to support the bonus issue.

4. **Notice to Shareholders**: Once the bonus issue is approved by the

board, the company must notify shareholders of the bonus issue and the
terms thereof.

5. **Record Date**: The company must determine a record date, also

known as the bonus record date, to ascertain the entitlement of shareholders
to receive bonus shares. Shareholders listed on the company's register of
members as of the record date are eligible to receive bonus shares.

6. **Allotment**: After the record date, the company proceeds with the
allotment of bonus shares to eligible shareholders. The bonus shares are
typically credited to the shareholders' demat accounts or issued in the
form of physical share certificates.

7. **Reporting Requirements**: The company is required to file necessary

documents with the Registrar of Companies (RoC) regarding the issue of
 bonus shares, including resolutions passed by the board and any relevant
disclosures.

Bonus issues are often used by companies as a means of rewarding

shareholders without distributing cash dividends, conserving cash resources
for other purposes such as investment or expansion. Additionally, bonus
issues can enhance liquidity in the company's shares and signal confidence in
the company's financial position and future prospects.