When there is no nominal value, the mechanism for capital reorganization33 will be simplified. New York: Oxford UP, However, credit of a modern corporation is more likely to depend on factors such as income and cash flow. If the allocation price of shares is greater than their par value, e. Commonly, the share capital is the total of the aforementioned nominal share capital and the premium share capital. This may not be thought to be a common occurrence but if investment in shares is to be made attractive to average Australians as a way of encouraging the saving needed for the nation's economic good, the confusion between nominal value and real value should be removed.

Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing. They would still have a fiduciary duty to the company to evaluate that consideration in good faith. That duty could be specifically stated in the legislation. Such liberty is restricted by the nominal value. As an example, under the jurisdiction of the Delaware state 43, accounting for franchise tax using Assumed Par Value Capital Method is sophisticated.

The amount of tax also tends to be higher than normal tax calculations. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure. Capital reduction will compensate for a deficit in retained earnings allowing the firm to pay dividends without waiting for current operating results.

To support capital increases by new investors To encourage efficiency of capital usage, which consequently improves financial ratios e. To the Shareholders To have more opportunities to receive dividend payments if the company is experiencing a deficit in retained earnings.

Listed Company Development Department. Capital Reduction. It needs to be reiterated here that the shares only appear to be cheaper, though it makes no difference whether you buy one share for Rs 3, or two for Rs1, each. A 2 for 1 bonus would mean you get two additional shares — free of cost — for the one share you hold in the company.

If you hold shares of a company and a bonus offer is declared, you get shares free. That means your total holding of shares in that company will now be instead of at no cost to you. Another aspect of a bonus issue is that it reflects the confidence of the company in its ability to service a larger equity base. Post the bonus, the share price should fall in proportion to the bonus issue, thereby making no difference to the personal wealth of the share holder.

However, more often than not, a bonus is perceived to be a strong signal given out by the company and the consequent demand push for the shares causes the price to move up. Furthermore, in terms of a share split, the nominal value of the share will result in a reduction following the split of shares, in such circumstances there will be legal consequences47 as many jurisdiction are against the idea of issuing shares for a value below par.

Consequently, the company could be disentitled from future benefits If a prosperous company has profits available to be capitalized, the process of capitalisation must entail a fresh issue of shares. If the shares had no par value the profits would be simply capitalized without any share issue. The preparation of share certificates and other administrative work associated with a share issue would not be needed. Investors would have fewer pieces of paper to safeguard. Also, a stock split increases the number of shares traded in the market, which increases liquidity.

These factors are considered positive, and therefore the market reacts positively! Difficulties enumerated in the analysis part is mostly there to be seen as consequences of the sections indicated under the Companies act compared with the Companies Act. A close examination as to the sections and the gist of them would give a clear idea as to how the concept of par value complicated the process of share capital management. The following selected provisions will illustrate it quite clearly.

Concept Companies Act No. While taxation law is framed against a background of par value for shares it may be argued by some that companies should not be forced into the no par value system. Another argument is that the company may wish to have the ability of transferring its incorporation to a place where no par value shares are not permitted. However, if a company is to have the option, there would need to be a prescription that all the preference shares or all the ordinary shares of a company may be either shares without par value or shares with nominal value and that no company can be allowed to have either ordinary shares or preference shares of both these descriptions at the same time.

It followed as the company paves the way for number of does not have the liberty to benefits and the accounting issue shares to an amount procedure is convenient as below par. It could be a there is no par value disadvantage and complex in concerned. Where default is made in complying with the provisions of this subsection, the company and every officer of the company who is in default shall be guilty of an offence and shall be liable to a default fine.

Share premium is part company. Share Capital is of the capital, using it to unaffected. Companies Act No. Without the authorized share capital stated in the memorandum of the company, the company can raise any amount of share capital. The present legislature does not allow a company to issue shares higher than the stated authorized share capital.

Any increase in the authorized share capital has to be approved by its shareholders. Other financial instruments may be sold in capital markets and these products are becoming increasingly sophisticated. Some capital markets are available to the public directly while others are closed to everyone except large institutional investors.

Private trade, mostly between large institutions with high-volume trades, occurs via secured computer networks at very high speeds. These markets all trade financial securities, so they are all capital markets. The stock market is a very significant portion of the total volume of capital market trades. Capital markets are composed of primary and secondary markets.

The majority of modern primary and secondary markets are computer-based electronic platforms. Primary markets are open to specific investors who buy securities directly from the issuing company. These securities are considered primary offerings or initial public offerings IPOs. When a company goes public, it sells its stocks and bonds to large-scale and institutional investors such as hedge funds and mutual funds.

The secondary market, on the other hand, includes venues overseen by a regulatory body like the Securities and Exchange Commission SEC where existing or already-issued securities are traded between investors. Issuing companies do not have a part in the secondary market.

The Stock Market The stock market has several very popular markets available for public trading. Other countries have popular stock markets, such as the Tokyo Stock Exchange in Japan. Each market has specific times during the day when it remains open. By trading through different markets, it is possible for investors to actively trade stocks throughout the day. The primary function of the stock market is to bring buyers and sellers together into a fair, regulated, and controlled environment where they can execute their trades.

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