Chapter 2: Sources of Corporate Finance

Shares
Share is a smallest unit in the total share capital of the company.

Features of Shares:
1. Meaning (Smallest unit in the total share capital of the company)
2. Ownership (shareholder is the owner of the company)
3. Evidence of Title (shareholder gets share certificate as the ownership proof)
4. Rights (receive dividend, get notices, inspect statutory books, etc.)
5. Income (dividend)

6. Distinctive Number (to identify its owner)

7. Value of a Share (Face Value, Issue Price, Market Value)

8. Property of a Shareholder (movable property)

9. Transferability (freely transferable)

10. Kinds of Shares (Equity Shares and Preference Shares)

Equity Shares
Shares which are not preference shares are Equity Shares.

Features of Equity Shares:

1. No Preferential right (in payment of Dividend and Repayment of Capital)
2. Residual Claimant (after Preference Shareholders)
3. Controlling Power (they can participate in the management by exercising voting
powers)
4. Rights (Right to vote, Right to share in profit, Right to inspect books, Right to transfer
shares)

5. Permanent Capital (irredeemable)

6. Fluctuating Dividend (depends on the profits of the company and dividend policy)

7. Bonus Issue (shares issued free of cost)

8. Right Issue (right to buy new shares is given)

9. Face Value (low)

10. Market Value (fluctuates according to the performance of the company)
11. Capital Appreciation (when market value of shares increases)

12. Risk (if the income of the company falls, dividend rate goes down and market value of
shares also goes down)
13. No charge on assets (unsecured)

Types of Equity Shares:

- With Normal Voting Rights (shareholders get voting rights in proportion to their
shareholdings)
- With Differential Voting Rights (shareholders gets varying rights regarding dividend,
voting, etc.)
Preference Shares
Preference Shares are those shares which enjoy preferential rights in respect of Payment of
Dividend and Repayment of Capital.

Features of Preference Shares:

1. Preference for Payment of Dividend (dividend is paid first to preference shareholders
and then to equity shareholders)
2. Preference for Repayment of Capital (repayment of capital at the time of winding up
is first done to preference shareholders and then to equity shareholders)

3. Nature of Capital (redeemable)

4. Fixed Return (fixed rate of dividend)

5. Rights or Bonus Issue (no such benefits)

6. Voting Rights (do not enjoy normal voting rights)

7. Market Value (does not fluctuate)

8. Face Value (higher than equity shares)

9. Risk (safety of capital and steady return on investment)

10. Nature of Investor (cautious investors)

Types of Preference Shares:

1. Cumulative Preference Shares (dividend goes on accumulating until it is fully paid)
2. Non-cumulative Preference Shares (dividend does not accumulate)
3. Participating Preference Shares (fixed rate of dividend + share in additional profits)
4. Non-participating Preference Shares (fixed rate of dividend)
5. Convertible Preference Shares (right to convert into equity shares after a particular
period)
6. Non-convertible Preference Shares (cannot be converted into equity shares)
7. Redeemable Preference Shares (repaid after a particular period)
8. Irredeemable Preference Shares (never repaid - such shares are not permitted to be
issued)

Debentures
The tern Debenture comes from the Latin word ‘Debere’ which means to ‘owe’. It is a
document acknowledging the debt taken by the company.

Features:
1. Security (secured by creating a charge on the assets of the company)
2. Time of Repayment (repaid on maturity date)
3. Priority of Repayment (priority over other claimants)
4. Assurance of Repayment (on maturity date)
5. Promise (that it owes money to debenture holder)

6. Status of Debenture holder (creditor)

7. Interest (at fixed rate)
 8. No Voting Right (as they are creditors of the company)

9. Issuers (private as well as public limited companies)

10. Authority to issue Debentures (BoD)
11. Listing (with atleast one recognized stock exchange)

12. Face Value (high)

13. Parties to Debentures (Company, Trustees, Debenture holders)
14. Transferability (freely transferable)

Types of Debentures:
1. On the basis of Security
a. Secured Debentures (secured by creating a charge on the assets of the
company)
b. Unsecured Debentures (no charge on the assets of the company)
2. On the basis of Transfer
a. Registered Debentures (Register of Debentures) (For the transfer a procedure
needs to be followed)
b. Bearer Debentures (Transferable by mere hand delivery)
3. On the basis of Repayment
a. Redeemable Debentures (repaid after a particular period of time)
b. Irredeemable Debentures (never repaid during the lifetime of the company)
4. On the basis of Conversion
a. Convertible Debentures (can be converted into equity shares after a particular
period of time)
b. Non-convertible Debentures (can never be converted into equity shares)

Bond
It is a formal contract to repay borrowed money with interest. Company borrows money and
issues bonds as evidence of debt.

Features
1. Nature of Finance (long term finance)
2. Status of Bond holder (creditor)
3. Return on Bonds (fixed rate of interest)
4. Repayment (on maturity date)

American Depository Receipt (ADR) and Global Depository Receipt (GDR)

Please refer from Text Book

Commercial Banks
Schemes for disbursement of Credit:
- Overdraft
- Cash Credit
- Cash Loans
- Discounting Bills of Exchange
 Chapter 3: Issue of Shares

1. Public Issue or Public Offer of Shares

Pricing Methods:
Fixed Price Issue Method (price is predetermined and stated in the
prospectus)
Book Building Method (applicants must bid between floor price and
cap price. bidding is kept open for 5 days. cut off price is decided and
then the shares are issued at the cut off price)
Methods of Public Offer
- Initial Public Offer (IPO) (offering shares to the public for the first time)
- Further Public Offer or Follow on Public Offer (FPO) (offering shares to the
public after an IPO)
2. Offering Shares to Existing Equity Shareholders:
a. Right Issue (Existing Equity Shareholders are given the right to subscribe new
shares in proportion to their existing shareholdings)
Provisions:
- Price lesser than the market value
- Send ‘Letter of Offer’
- Registered Post, Speed Post, Courier or Electronic Mode
- Validity – 15 days to 30 days
- Right to Renounce
- If existing shareholders do not subscribe then shares can be issued to new
investors
- Minimum Subscription – 90% of the issue
b. Bonus Issue/ Shares (Fully paid equity shares are issued to existing equity
shareholders in proportion to their existing shareholdings. Amount equal to the
shares issued is transferred from Reserves to Capital. Hence it is known as
‘Capitalisation of Profits or Reserves’)
Provisions:
- can be issued out of Free Reserves, Securities Premium, CRR
- cannot be issued out of Revaluation Reserve
- cannot be revoked (cancelled)
- fully paid up shares
- cannot be renounced
- no minimum subscription
3. Offering Shares to Existing Employees:
a. Employees Stock Option Scheme (ESOS) (permanent employees, Directors or
Officers of the company or its Holding Company or its Subsidiary Company are
 offered the benefit to purchase the Equity Shares of the company at a future
date at a pre-determined price)
Provisions:
- Price lesser than the market price
- Minimum vesting period of one year
- Minimum Lock-in-period of one year
- No dividend or voting rights until shares are bought
- Non Transferable, cannot be mortgaged or pledged
b. Employee Stock Purchase Scheme (ESPS) (employees are offered the benefit
to purchase the Equity Shares of the company at a future date at a pre-
determined price. company deducts certain amount from the salary of the
employee towards the payment for the shares)
Provisions:
- Different no. of shares to different employees
- Shares issued must be listed
- Minimum Lock-in-period of one year
- Special Resolution in Shareholders meeting
c. Stock Appreciation Rights Scheme (SARS) (employees are given a right to
receive appreciation in the value of specified number of shares of the company
at a future date. Appreciation value is paid in cash or through equity shares)
Provisions:
- Minimum vesting period of one year
- No Minimum Lock-in-period
- Special Resolution in Shareholders meeting
d. Sweat Equity Shares (shares issued by a company to its directors or employees
at a discount or for a consideration other than cash to recognize their valuable
contribution to the company)
Provisions:
- Minimum Lock-in-period of three years
- Special Resolution in Shareholders meeting
4. Private Placement (offering its shares to a select group of persons not exceeding 200)
- BoD select or identify the persons
- Issue private placement offer letter
- Cannot be issued against cash
- Cannot be renounced
- Two ways (1. Rights Issue. 2. Preferential Allotment (to the promoters,
existing shareholders, employees, venture capitalists, etc.)

Allotment of Shares:
Issuing shares to the applicants is known as Allotment of Shares.

Provisions or Conditions for allotment of Shares:

A. Statutory Provisions
a. Registration of Prospectus (with Roc. Signed by every Director)
b. Application Money (Companies Act – 5% of FV. SEBI – 25% of FV)
c. Minimum Subscription (90% of the issue – within 30 days of the issue of prospectus)
d. Closing of Subscription List (3 working days to 10 working days)
e. Basis of Allotment (decided by Allotment Committee)
f. Over Subscription (not more than 10% of the actual offer)
g. Permission to deal on Stock Exchange (listed on atleast one recognized stock exchange)
h. Appointment of Managers to the issue and various other agencies
B. General Principles:
a. Proper Authority (BoD)
b. Allotment must be against application only (no other method)
c. Reasonable Time (within 60 days of the application)
d. Absolute and Unconditional Allotment (as per the terms and conditions given in
prospectus and application form)
e. Communication (sending Allotment Letter)
f. Allotment should not be in contravention (violation) of any other laws (no violation)

Share Certificate
It is a registered document issued by a company which is an evidence of ownership of specified
number of shares of the company.
Contents of share certificate:
a. Name of the Company, CIN, Registered office address
b. Folio Number
c. Share Certificate Number
d. Name of Member
e. Nature of share, number of shares and distinctive number of shares
f. Amount paid on shares
g. Common Seal, if any and signature of two Directors and Company Secretary

Duplicate Share Certificate (notice in the newspaper, no response from the public,
Duplicate SC is issued within 3 months of the application, ‘Duplicate SC’ is stated in bold)

Transfer of Shares
- Voluntary Transfer of Shares by a member of a company in favour of
another person.
- Transferor and Transferee
- Complete Transfer or Partial Transfer
Refusal to transfer shares
- If provision of A/A is not fulfilled
- If Companies Act is violated
- Company has lien on shares
 Blank Transfer
- Member signs Instrument of Transfer without filling the name of the
Transferee and hands it over to the Transferee alongwith the original SC
Forged Transfer
- When signature of the Transferor is forged

Transmission of Shares
- Shares of one person are automatically transferred to another person by
the operation of law in case of death, insanity or insolvency of the member.

Chapter 4: Issue of Debentures

Provisions for Issue of Debentures as per Companies Act, 2013:
1) No voting rights (creditors)

2) Types of debentures (secured or unsecured. covertible or non-convertible. redeemable)

3) Debenture Certificate (within 6 months of allotment)

4) Payment of interest and redemption (as per the terms of issue)

5) Create Debenture Redemption Reserve (create out of the profits of the company. can be
used only for the redemption of debentures)

6) Appoint of Debenture Trustee (in case of invitation to 500 or more people. to protect the
interest of the debenture holders. enter into Debenture Trust Deed)
7) Debenture Trustees can Approach NCLT (if the company defaults in payment of interest
or repayment of debentures)
8) Impose restrictions (when Debenture Trustee feels that the assets of the company are
insufficient to redeem the principal amount of debentures, it can approach NCLT. NCLT
can impose restrictions on the company to incur further liabilities)

9) Punishment for contravention of provisions of the Companies Act (in case of

contravention of these provisions, the Company and its officers shall be liable to fine or
imprisonment or both)

Provisions as per Companies (Share Capital and Debentures) Rules 2014, Rule 18:
1) Tenure of Secured Debentures (within 10 years)
2) Create charge on Assets (charge should be adequate to pay interest and repay
debentures)
3) Appointment of Debenture Trustees (before issuing prospectus or offer letter)
4) Create Debenture Redemption Reserve (out of the profits of the company. maintain
atleast 25% of the value of its outstanding debentures. Deposit on or before 30th April each
 year, atleast 15% of the amount of Debentures maturing during the year ending on 31st
March of the next year. Can be used only for redemption of debentures)

Requirements as per SEBI for issues of Debentures:

1) Minimum Subscription (if minimum subscription amount is not received, entire money
should be refunded within 12 days from the date of closure of the issue)
2) Retention of Over Subscription (maximum 100% of the base issue size)
3) Underwriting (appointment of underwriters must be mentioned in prospectus)
4) Credit Rating (from one or more credit rating agencies)

Procedure for issue of Debentures:

1) Pass resolution in Board Meeting (terms and conditions of issue, approve prospectus,
appoint Debenture Trustees, create charge, call EGM, open separate Bank account)
2) Hold Extra-ordinary General Meeting (EGM) (to increase borrowing powers of the Board.
Pass special resolution at the EGM)
3) Filing with Registrar of Companies (within 30 days of Board Meeting)
4) Obtain Credit Rating (from one or more Credit Rating Agencies)
5) Enter into underwriting agreement (for underwriting the issue)
6) Issue prospectus/ letter of offer/ offer letter (prospectus – public issue. offer letter –
private placement. letter of offer – rights issue)
7) Open Separate Bank Account (to receive money from applicants)
8) Receiving Application Money (within the time period mentioned in prospectus)
9) Hold Board Meeting (approve allotment and approve creation of charge on the assets)
10) Issue of Debenture Certificate (completion of allotment procedure – within 60 days from
the receipt of application money. Issuing Debenture Certificate – within 6 months from
the allotment of Debentures)
11) Make entries in Register of Debenture holders (within 7 days after the Board approval of
allotment)

Chapter 5: Deposits
Acceptance of Deposits:

Private Company (can accept deposits from its members or Directors or relatives of Directors)
Public Company (other than eligible company) (can accept deposits from its members or
directors)
Eligible Public Company (can accept deposits from its members and also from public)
Eligible Public Company means a company having
- Net Worth of not less than Rs. 100 Crores or
- Turnover of not less than Rs. 500 Crores and which has obtained prior approval of
its shareholders through special resolution for accepting public deposits
Terms and conditions for acceptance of deposits:
1. Amount of Deposit
Private Company (not more than 100% of its paid up share capital and free reserves)
Public Company (other than eligible company) (not more than 100% of its paid up
share capital and free reserves)
Eligible Public Company (from the members - not more than 100% of its paid up share
capital and free reserves. from the public - not more than 25% of its paid up share capital and
free reserves)
Government Company (not more than 35% of its paid up share capital and free
reserves)
2. Period/ tenure of Deposit (6 months to 36 months)
3. No Demand Deposit (cannot accept deposits repayable on demand)
4. Secured or Unsecured Deposit (if secured – create charge within 30 days of acceptance)
5. Application Form (declaration that the applicant has not deposited the money by borrowing
from any other person)
6. Joint names (not more than 3)
7. Nomination (right to nominate any person as nominee in the event of death of the
depositor)
8. Circular or Advertisement
Content (Statement of financial position, portion of secured or unsecured deposit,
Credit Rating, Name of Deposit Trustees, Amount due towards deposits of any previous
deposits accepted by the company)
Filing of copy of Advertisement or Circular with RoC (signed by all directors)
Issue of Circular or Advertisement (within 30 days of filing with the RoC)
Validity of Circular or Advertisement (6 months from the end of financial year in which
it was issued or the date of AGM, whichever is earlier)
9. Appointment of Deposit Trustee (Trust Deed has to be signed atleast 7 days before issuing
the circular or advertisement)
10. Create Charge on Assets (within 30 days of acceptance)
11. Deposit Insurance (atleast 30 days before issue of circular or advertisement. insurance is
to be taken if the amount of deposit plus interest is upto Rs. 20,000)
12. Obtain Credit Rating (rating should be obtained every year during the tenure of deposits)
13. Open Deposit Repayment Reserve Account (every year on or before 30th April, company
has to deposit atleast 15% of the amount of deposits maturing during the current year and
following financial year. can be used only for repayment of deposits)
14. Deposit Receipt (issue deposit receipt within 21 days from the date of receipt of money)
15. Register of Deposit (details should be entered in the Register of Deposits within 7 days
from the date of issue of Deposit Receipt)
16. Return of Deposit (to the RoC on or before 30th June year. the Return gives details of
deposit with the company as on 31st March of that year)
17. Interest (depends upon guidelines issued by RBI)
18. Right to alter the Terms and Conditions (cannot alter the terms and conditions)
19. Disclosure in Financial Statements (money received from Directors)
20. Punishment (responsible officer is punishable for fraud for contravention of the provisions
of the Act)
 Chapter 1: Introduction to Corporate Finance
Corporate finance deals with the raising and using of finance by a corporation. It deals with
financing the activities of the corporation, capital structuring and making investment
decisions.
Decisions that are the basis of corporate finance:
- Finance Decision (raise equity capital or debt capital)
- Investment Decision (in such a manner to get maximum returns for its owners)
Importance of Corporate Finance:
1. Helps in raising Capital for a project (shares, debentures, bonds, deposits, etc.)
2. Helps in Decision Making (most of decisions depend based on availability of funds)
3. Brings co-ordination between various activities (efficiency of every department
depends upon the effective financial management)
4. Helps in smooth running of Business Firm (payment to creditors, employees, payment
of EMIs, etc. on time)
5. Managing Risk (drop in sales, loss due to natural calamities, etc.)

6. Helps in Research & Development (huge funds are needed for R&D activities)
7. Promotes Expansion and Diversification (modern machines and modern techniques)

8. Replace Old Assets (funds are needed to replace old assets)

9. Payment of dividend and interest (funds are needed to pay dividend and interest)
10. Payment of taxes and fees (funds are needed to pay taxes and fees)

Fixed Capital
Fixed Capital is the capital which is used for buying fixed assets.

Factors affecting fixed capital requirement:

1. Nature of Business (Manufacturing – High. Trading – Low)
2. Size of Business (Large Scale – High. Small Scale – Low)
3. Scope of Business (All activities – High. Few activities – Low)

4. Extent of lease or rent (Owned – High. Leased/Rented – Low)

5. Arrangement of Sub-contract (Activities on own – High. Subcontracted – Low)

6. Acquisition of Old assets (New – High. Old – Low)

7. Acquisition of Assets on concessional rate (Actual Rate – High. Concessional Rate –
Low)

8. International conditions (Good – High. Bad – Low)

9. Trend in Economy (Good – High. Bad – Low)

10. Population Trend (Increasing – High)

11. Consumer Preference (Trending – High. Others – Low)
12. Competitive Factor (Competitors use modern technology – High. Others – Low)
Working Capital
Working Capital is the capital which is used to carry out the day to day activities.

Factors affecting working capital requirement

1. Nature of Business (Manufacturing essential commodities – Low. Manufacturing
luxurious commodities – High)
2. Size of Business (Large Scale – High. Small Scale – Low)
3. Volume of Sales (Huge – High. Less – Low)

4. Production Cycle (Longer – High. Shorter – Low)

5. Business Cycle (Boom – High. Recession – Low)

6. Terms of Purchases and Sales (Cash Purchases and Credit Sales – High. Credit
Purchases and Cash Sales – Low.)
7. Credit Control (Liberal – High. Strict – Low)

8. Management Ability (Ineffective – High. Effective – Low)

9. Growth and Expansion (Growing Firm – High. Stable Firm – Low)
10. External factors (banks, financial institutions, etc.)

Chapter 9: Depository System

Securities can be held in two modes:
A. Physical Mode of holding securities (Securities are held in the form of paper certificates)
Disadvantages:
1. Risk (lost, damaged, torn, stolen, misplaced, etc.)
2. Efforts in Duplicating (involves time, efforts and money)
3. Delay in allotment of securities (takes longer time)
4. Delay in Transfer and Transmission of securities (involves actual handling of physical
securities)
5. Risk of Bad Delivery (Delivering certificates which are torn, forged, etc.)

B. Electronic / Dematerialized mode of holding securities (Securities are held in electronic

form or dematerialized form)

Meaning of Depository System:

- Under Depository system, securities are held in electronic form. The transfer and
settlement of securities are done electronically. This system is also called as ‘Scripless
Trading System’.
- In India Depository System was introduced by passing the Depository Act in 1996.
- NSDL and CDSL.
- First Depository – Germany – 1947.

Importance of Depository System

- Eliminating huge volume of paperwork.
- Offers scope for paperless trading.
- Elimination of storage and handling of certificates.
- Reduces cost and efforts
Benefits / Advantages of Depository System:
A. To Investors:
1. Elimination of Risk (loss, theft, mutilation, etc.)
2. Safety (monitored by SEBI)
3. Easy transfer of Shares (no paperwork, no stamp duty, less processing time)
4. Updates and Intimation (provided regularly by DP)
5. Security against Loan (from banks and financial institutions)
6. No concept of ‘Lots’ (market lot is one share)
7. Nomination facility (shares can be transferred to the nominee in the event of death)
8. Automatic Credit (Dividend, Bonus Shares, Right Shares, etc.)

B. To Companies:
1. Up-to-date Information (about investors – provided by Depository)
2. Reduction in costs and efforts (in printing and distribution of certificates)
3. Better Investor - Company relationships (better communication with investors)
4. International Investment (better and quicker services – attracts investments from
abroad)

Constituents of Depository System

The Depository
- Holds securities in electronic form at investor’s request
- Different services related to different transactions
- Responsible for safe keeping of securities
- No direct access of investor with the Depositor
- Link between the company and investors

Depository Participants (DP)

- Agent of the Depository
- Registered with the SEBI
- Link between Depository and Investor
- Deals directly with the investors.
- Sends periodical statements to the investors
- Facilitates dematerialisation
- Credits securities directly
- Instant Transfers
- Settles trade electronically
- Maintains account of each investor
- Unique number for identification
The Beneficial Owner (BP)
- Investor of securities
- Entitled to all rights, benefits and is subject to all liabilities related to securities
- Can also be called as client of Depository and DP
 - Must open Demat A/c for electronic holding of securities
- Given a unique account number in which securities are held
The Issuer Company
- Company which has issued securities in dematerialized form
- Must be registered with the Depository

Concepts/ terms related to depository system:

1. Dematerialization
- It is a process by which securities are converted from physical form to electronic form.
- The client must surrender original Share Certificate alongwith Demat Request Form.
2. Rematerialization
- It is a process by which securities are converted from electronic form to physical form.
- The client must submit Remat Request Form.
3. Fungibility
- It means the state of being interchangeable.
- Securities held in electronic form are fungible.
- They are interchangeable, substitutable and cannot be distinguished from each other.
4. International Securities Identification Number (ISIN)
- Code that uniquely identifies a specific security.
- Allotted by country’s NNA (National Numbering Agency).
- Standard numbering system accepted globally.
- SEBI works as NNA in India.
- For Govt securities ISINs are allotted by RBI.
- 12 digit alpha numeric code divided in 3 parts.
- Company has to apply for ISIN.

Depositories In India:
A. NSDL : National Security Depository Limited
- First and largest depository in India established in November, 1996.
- Promoted by IDBI, UTI and NSE.
- Headquarter – Mumbai.
- Public Limited Company registered under Companies Act.
- Provides various services.
B. CDSL : The Central Depository Services Limited
- Began operations in February, 1999.
- Promoted by BSE jointly with several banks.
- Headquarter – Mumbai.
- Wide DP network and offers Demat services across the country.

Chapter 10: Dividend and Interest

DIVIDEND:
The word ‘Dividend’ is derived from the Latin word ‘Dividendum’ which means ‘that which is
to be divided’.
It is that part of the profits of the company which is distributed among the shareholders.
Features:
1. Portion of Profits
2. Payable out of Profits
3. Unconditional Payment
4. Paid to Equity and Preference Shareholders
5. Cannot be declared out of Capital
6. Recommended by BoD
7. Approved by shareholders at the AGM
8. Cannot be revoked
9. Includes Interim Dividend
10. Must be paid in cash and not in kind
11. Paid on paid up value of shares
12. Cannot be paid on calls in advance

Legal provisions on Sources of Dividend

1. Declare and pay dividend out of Current Year’s Profit, Previous Years profits, money
provided by CG and SG
2. Can be paid out of Capital profits, if
a. Such Capital Profit is realized in cash
b. Provision in A/A
c. Such profits remain after the revaluation of all assets and liabilities
3. Can be paid out of Free Reserves
4. Cannot be paid out of Capital

Legal provisions for declaration of Dividend:

1. Board Meeting (pass resolution about rate of dividend, book closure date, date of
AGM, open separate bank account)
2. Shareholders Approval (Ordinary resolution at the AGM. Lower rate possible but
higher rate not possible. Cannot be revoked)
3. Separate Bank Account (in a scheduled bank called as Dividend Account within 5 days
of its declaration)
4. Prohibition to pay Dividend (cannot declare dividend on equity shares if the company
has defaulted in payment of interest or repayment of debentures or deposits)

Legal provisions for payment of Dividend:

1. Must be paid in cash and not in kind
2. May be paid by cheque or warrant or by any electronic mode
3. In case of joint holding, first named joint shareholder is entitled to dividend
4. Must be paid within 30 days of its declaration
5. Payable only to the registered shareholders
6. If shares are in electronic form, dividend is paid to the Beneficial Owner as per the
records of Depository
7. Default in payment – A. punishment to every Director. B. Company is liable to pay
simple interest @ 12% during the period of default.

Unpaid and Unclaimed Dividend

The dividend declared by Company but has not been paid by it or claimed by a shareholder
within 30 days of its declaration is termed as ‘Unpaid and Unclaimed Dividend’.
Provisions:
1. Should be transferred to ‘Unpaid Dividend Account’ opened in a scheduled Bank
2. Should be transfer within 7 days of the end of 30 days within which payment was to
be made
3. Within 90 days of the transfer of amount in the ‘Unpaid Dividend Account’ the
company is required to put on its website, or any other website as approved by the
Central Govt, a statement which shows names, addresses and unpaid amount to
each shareholder
4. Any claimant to the Unpaid Dividend Account may apply to the company for the
payment of money claimed.
5. Any amount in the ‘Unpaid Dividend Account’ which remains unpaid/unclaimed for
a period of 7 years from the date of transfer, shall be transferred to IEPF.
6. The claimant will have to follow the procedures and submit necessary documents to
get the claim from IEPF

INTERIM DIVIDEND
Dividend declared by the BoD between two AGMs is called Interim Dividend. It is paid in the
middle of the accounting year. Opinion of the Company’s Auditor must be taken before
declaring Interim Dividend.
Features
1. Power to declare – BoD
2. Part of Final Dividend
3. Provide depreciation for the entire year
4. Cannot be paid out of Reserves
5. Provision in A/A
6. Resolution in Board Meeting
7. Credited in a separate Bank account in a scheduled bank within 5 days of declaration
8. Should be paid within 30 days of declaration
9. Should be transferred to ‘Unpaid Dividend Account’ within 7 days after the expiry of
30 days
10. Any amount remaining unpaid/unclaimed for 7 years should be transferred to IEPF

INTEREST
Return to the creditor for using their money in the business.

Features
1. Return on Borrowed Capital
2. Directly related to Risk
3. Rate of Interest is expressed as annual percentage of Principal
4. Depends on many factors
5. Payable even if company earns no profit
6. Payable at a fixed rate
 Chapter 11: Financial Market
Financial Market is a market where financial assets are bought and sold or exchanged.

Functions of Financial Market:

1. Easy Access (provides a platform where borrowers and lenders can find each other)

2. Transfer of Resources (from lenders to borrowers)

3. Mobilizing Funds (from lenders to borrowers)

4. Capital Formation (savings are invested which leads to capital formation)

5. Productive Usage (borrowers use funds for productive purposes)
6. Industrial Development (borrowers can start business as well as expand and diversify)

7. Enhancing Income (lenders earn interest of dividend)

8. Sale Mechanism (provides marketability and liquidity)

9. Liquidity (assets can be easily converted into cash anytime)

10. Price Determination (determined by demand and supply forces)

MONEY MARKET:
Money market is a market where borrowing and lending of short term funds takes place.

Features of Money Market

1. Maximum period – 1 year
2. Transaction volume is large – wholesale market for short term funds
3. Participants – RBI, commercial banks, mutual funds, financial institutions, corporates
4. High Liquidity
5. Return on investments is low
6. Combination of various markets

CAPITAL MARKET:
Capital market is a market where borrowing and lending of medium term to long term funds
takes place.

Features of Capital Market:

1. Link between investors and borrowers (routes funds from lenders to borrowers)
2. Deals in medium and long term investments (more than 1 year period)
3. Presence of Intermediaries (brokers, underwriters, merchant bankers, etc.)
4. Promotes Capital formation (savings when invested leads to capital formation)
5. Regulated by government rules, regulations, policies (SEBI is the regulator of Capital
Market)
6. Deals in marketable and non-marketable securities (Marketable – Shares,
Debentures, etc. Non-Marketable – Term Deposits, Loans and Advances)
7. Variety of Investors (Individual investors as well as Institutional investors)
8. Risk (High risk due to long term period. But return is high)
Instruments in Capital Market:
1. Equity Shares
2. Preference Shares
3. Debentures
4. Bonds
5. Government Securities
6. Public Deposits

Types of Capital Market:

1. Government Securities Market or Gilt edged market (Government and semi

Government securities are traded)
2. Industrial Securities Market (Industries securities are traded)
- Primary Market (fresh securities are issued)
- Secondary Market (already issued securities are traded)
Methods of raising funds in Primary Market:
o IPO (Initial Public Offer)
o FPO (Further/Follow on Public offer)
o Rights Issue
o Private Placement

Chapter 12: Stock Exchange

Stock Exchange is a part of Capital Market where Corporate Securities are bought and sold.
Only listed securities can be traded on a stock exchange.
Oldest Stock Exchange – London Stock Exchange – founded in 1571.
Bombay Stock Exchange – founded in 1875.

Features of Stock Exchange:

1. Market for Securities (Govt and corporate securities are traded)
2. Second Hand Securities (already issued securities are traded)
3. Listed Securities (only listed securities are traded)
4. Organized and Regulated Market (SEBI regulates Stock Exchanges)
5. Trading only through Members (through DPs)
6. Specific Location (earlier – a place. Now – electronically traded)

Functions of Stock Exchange

1. Mobilization of Savings (from lenders to borrowers)
2. Promotes the Habit of Savings and Investment (leads to capital formation)
3. Capital Formation (savings when invested leads to capital formation)
4. Better Allocation of Capital (profit making companies are high demand and thus
people invest more in such companies)
 5. Contributes to Economic Growth (industrial development leads to economic growth)
6. Economic Barometer (measure the economic condition of a country)

7. Pricing of Securities (demand and supply forces)

8. Protecting Interest of Investors (shares of only listed companies are traded. Listed
companies must follow the rules and regulations framed by SEBI)
9. Liquidity (securities can easily be converted into cash)
10. Providing Scope for Speculation (healthy speculation of securities)

Major Stock Exchanges in India:

Bombay Stock Exchange (BSE)
- Set up in 1975 and was called as ‘The Native Share and Stock Broker’s Association’
- Located in Dalal Street in Mumbai
- Asia’s first Stock Exchange
- 11th largest stock exchange in the world
- Largest number of companies listed
- Switched to electronic trading system in 1995

National Stock Exchange (NSE)

- Set up by a group of leading Indian Financial Institutions in 1992 as a Company
- Recognised as a stock exchange in 1993
- Started trading activities in 1994
- Largest and most modern stock exchange in India
- Located in Mumbai
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
- Regulator of Capital Markets
- Established in 1992
- Headquarters in Mumbai

Functions:
1. Protect the interest of investors

2. Register and Regulate the working of Intermediaries

3. Register and Regulate the working of Depositories, DP, FII, CRA, etc.
4. Register and Regulate the working of VC, MF, etc.

5. Prohibit fraudulent and unfair trade practices

6. Prohibit Insider Trading

7. Promote development of Securities Market

8. Promote and Regulate Self Regulatory Organisations
9. Promote Investors’ Education and Training of Intermediaries