MCQs Course for SEBI Grade A 2020 - Paper 2

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1. What do you understand by the Right shares?

A. Issued by a newly formed company

B. Legally issued to the public at large

C. Offered to the existing equity shareholders

D. That has a right of redemption

Answer: C

Right shares are the shares Offered to the existing equity shareholders. A
rights offering (rights issue) is a group of rights offered to existing
shareholders to purchase additional stock shares, known as subscription
warrants, in proportion to their existing holdings.

2. The right issue is an offer of which share for further issue?

A. Equity Share

B. Preference Share

C. Both

D. None

Ans. A

A right issue is an offer of equity shares in a further issue of shares by a

company to its existing shareholders to enable them in maintaining their
financial and governance interest in the company if they so desire.

3. Which section of the Companies Act defines Right Share?

A. Sec-80(2)
B.Sec-82(1)

C. Sec-81(1)

D.None

Ans: C

Sec. 81(1) of the Companies Act, 1956, states that the right shares are those
shares that are issued after the original issue of shares but have an
inherent right of the existing shareholders to subscribe to these shares in
proportion to their holding.

4. Right share offered to the existing share on which of the following

basis?

A. Pro Rata Basis

B. Buy Back Basis

C. Refund

D.None

Ans: A

Such shares must be offered to the existing equity shareholders on a pro

rata basis.

5. Which of the following statement is correct?

A. A prospectus is issued for the sale of right share

B. The call is made for issuing right shares

C. No Prospectus is issued or offer for sale of Right Issue

D. None of these

Ans: C
A rights issue or rights offer is a dividend of subscription rights to buy
additional securities in a company made to the company's existing security
holders. When the rights are for equity securities, such as shares, in a
public company, it is a non-dilutive(can be dilutive) pro-rata way to raise
capital. Rights issues are typically sold via a prospectus or prospectus
supplement.

6. For which type of company Sec-81(1) of Right share rules shall not
apply?

A. Public Company

B. Private Company

C . Both

D. None

Ans: C

Sec. 81(3) provides that the rules contained in Sec. 81(1) shall not apply:

(i) To a private company; or

(ii) Where the subscribed Capital of a Public Company is increased due to

the debenture-holders or creditors who gave an option to convert the
debenture or loans into a share of the company. It must be remembered
that a right is an option and not an obligation to the existing shareholders
to purchase shares at the specified price.

7. What is/are the features of Right Issue?

A. To exercise the Right

B. To exercise the Right;

C. To hold the Rights until they expire

D. All of these

Ans: D
A shareholder has four following options regarding ‘Right Issues’:

(i) To exercise the Right;

(ii) To sell their Rights;

(iii) To hold the Rights until they expire; and

(iv) To sell existing shares and, at the same time, to purchase new shares.

8. What is the purpose behind the issue of the right shares?

A. Controlling Interest

B. Controlling Power

C. Controlling Premium

D. None

Ans: A

Right shares are issued for the purpose of controlling interest of the
existing shareholders. On the contrary, if the shares are offered among the
outsiders, the controlling power of the existing shareholders will be
adversely affected.

9. While issuing ‘Right Shares’ the financial manager must consider

which of the following consideration?

A. Offer Price

B. Right Ratio

C. Both

D. None of these

Ans: C

While issuing ‘Right Shares’ the financial manager must consider the
following points since the issue of ‘Right Shares’ involves some
complication:

a. Offer Price:

Usually, the offer price must be lower than the prevailing market price,
otherwise, the shareholders will not be interested to subscribe for the
shares, The difference between the market price and the offer price is
nothing but ‘right’ to earn a profit. Needless to say, that offer price is
determined on the basis of some factors; viz., expected earnings/return,
market sensitivity to offer, etc.

b. Right ratio:

Since the total requirements of the funds are known, the number of right
shares to be issued can be determined by dividing the total required funds
by the offer price. The right ratio is commuted after comparing the new
shares to be issued and the existing shares.