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Equity shares cannot be issued for the purpose of:
Cash Receipts
Purchase of assets
Redemption of debentures
Distribution of dividend
A convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period. Convertible debentures are usually unsecured bonds or loans meaning that there is no underlying collateral connected to the debt. PURCHASE OF ASSET:A company generally buys the assets for the business for cash or on credit. Also, it usually issues shares for cash. But, in some cases, it may choose to buy the assets in exchange of shares. It may offer the fully paid equity shares to the vendor for the value of the assets.If the vendor agrees to it, the company issues him the fully paid shares. Usually, the company receives no cash in respect of these shares. A company may issue these shares at par or at a premium. The company calculates the number of shares on the basis of the amount payable to the vendor.
Number of shares= purchase consideration ?/ Issue Price of the shares
CASH RECEIPTS:Equity shares may be issued for cash at par or at premium. When a company issues shares at a price equal to the face value (nominal value), it is known as issue at par. When a company issues shares at a price more than the face value, the shares are said to be issued at premium. The excess is called as premium. the amont received from equity shares are used to raise cash for the business.
dividend sitribution: also called a return of capital, is a payment a company makes to its investors thats drawn from its paid in capital or shareholders's equity it is not any kind of purpose related to equity shares
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