Amaze Ltd., a listed company, is running its business with strong fundamentals, but does not foresee any option to bring fresh capital from its existing shareholders. Raising capital from the public is also out of reach

CS Professional · Capital Commodity and Money Market · PYQS · June 2016
Amaze Ltd., a listed company, is running its business with strong fundamentals, but does not foresee any option to bring fresh capital from its existing shareholders. Raising capital from the public is also out of reach due to sluggish capital market sentiments. The financial position of Amaze Ltd. as on 31st March, 2015 is as follows: Amaze Ltd. (in lakh) Liabilities Authorised capital 20.00 Paid-up share capital: 1,00,000 shares @ ₹10 each 10.00 Securities premium account 15.00 General reserve 5.00 Surplus 10.00 Goodwill 3.00 TOTAL 43.00 Assets (in lakh) Net fixed assets 20.00 Current assets 20.00 Cash at bank 6.00 46.00 Less: Provision for dividend (3.00) TOTAL 43.00 The company is contemplating to make its follow-on public offer (FPO) after 2 years. Now the company wants to restructure its capital base and is willing to show good prospects. What is the best option available for its capital restructuring, so that at the time of FPO, it will increase investors' confidence. State the immediate formalities required for FPO.

Answer & Explanation:

As the company is not able to make a right offer and FPO for sluggish capital market, the bonus issue is the best option by capitalising ₹10 lakh. The authorised capital is ₹20 lakh. There will be residual reserve of ₹5 lakh. It is suggested to plan a board resolution or member resolution (based on the authority conferred under the Articles of Association of the Company) and inform to the stock exchange before the meeting called and after decision, fix a record date. The notice of decision will be dispatched to the shareholders and publish the record date in the newspaper. Dispatch the bonus shares / credit the bonus shares in the Demat account of the shareholders. Further, obtain the listing approval, from stock exchanges, for commencement of the trading in the bonus shares.

Topics: Capital Restructuring

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