In this blog post, Sunidhi, a student of the Rajiv Gandhi National University of Law, Patiala has written about how MIT became a major shareholder of Bose Corporation.
Introduction
A Share is a certificate of investment in a company. Shares are also known as stocks or equities. A public limited company, registered with a Stock Exchange, can issue shares to the public to raise capital. The person holding shares is known as a shareholder.
Shares have a face value. The face value multiplied by a total number of shares forms the share capital. Shareholders receive the dividend on the money invested by them in the share capital. The shares are of two types divided by voting rights. One class of shares i.e. equity shares have voting rights whereas preference shares do not have voting rights.
Can an Educational Institute Buy the Shares Of a Company?
The shares can be bought in many ways such as investment by an individual or collective investment. Collective investment means many individuals or companies pool their resources and buy shares or invest in some other asset collectively. Collective investment is becoming more and more prominent these days due to various benefits attached to it. In this type of investment, all the shareholders accumulate their funds and invest it in the most feasible option through a professional fund manager. The major benefits of buying shares through this way are that the risk and cost get divided among all the investors.
The answer to the above question depends on upon the type of educational institute it is. There are two types of educational institutions:
- Non-Profit Institutions
- For-profit institutions
The Non-Profit Institutions are those whose main motive is to provide education to the students. The income of these institutions is either equal to their expenditure or excess of income over expenditure. These institutions do not generate profits, but if in case they generate any excess amount then they invest it in the development of that institution only. The basic purpose of such an educational institute is for the welfare of society by shaping the young minds and not to earn profits by investing in shares. These institutions also get tax benefits for being public trusts. Since these institutions have no motive to earn a profit; they cannot invest in the shares of a company.
The For-Profit Educational Institutions are the corporations that usually have shareholders. It is the business of these organizations to provide education as a service. Hence, they sell education. Their sole aim is not only to provide education, but their aim is to provide education and generate profits for their shareholders. These institutions can issue shares for the purpose of getting funds for expansion. For example, Strayer University is one of the oldest For-Profit educational institutions founded in 1892. In 1996 it issued shares to raise capital.
Since these educational institutions are organizations for profit, they can buy shares of any company, registered with a stock exchange.
Indian Position
In India, the government does not provide full autonomy to For-Profit institutions. Despite many restrictions, there are considerable numbers of For-Profit educational institutions in India. The reason being, education was and is considered a key area that still needs government attention, patronage and hence control. The basic purpose of educational institutions has been stated in the Central Universities Act, 2009.
Section 6 of the said Act states that the object of the University shall be to disseminate and advance knowledge by providing instructional and research facilities; to take appropriate measures for promoting innovations in teaching- learning process; to pay special attention to the improvement of the social and economic conditions and welfare of the people, their intellectual, academic and cultural development.[1]
The basic purpose of educational institutes is not to make money but to provide education to the society. Its main motive is to prepare the students for their development and better job prospects for the future as well as the development of the nation by providing brilliant minds to lead the nation.
In India, most of the educational institutions are registered as public trusts i.e. no motive for profit earning. The income of an institution registered as public trust is not taxable. Therefore, such non-profit educational institutions cannot invest in shares of a company.
How did MIT Become A Shareholder of Bose Corporation?
Did you know that MIT holds a major part of the shares of Bose Corporation? The exact details have been kept confidential by them.
Massachusetts Institute of Technology (MIT) is a Not-For-profit, private research university in Cambridge, Massachusetts. MIT did not buy the shares of Bose Corporation. Amar Bose gifted his shares to it and thus made MIT a major shareholder of the Bose Corporation. Although the shares were in the form of non-voting shares, this did not affect the position of Amar Bose as it did not take away his voting powers. Also, MIT cannot trade these shares with a third-party.
These shares are a source of revenue for MIT. MIT will have funds to continue its research work in the form of dividends declared by the Bose Corporation every year if it declares any. This gift was an expression of gratitude by Amar Bose and the funds in the form of cash dividends will be used by MIT to sustain and advance MIT’s education and research mission.
Hence, a Not-For-profit educational institute cannot invest in the shares of a company, but it can enjoy the rights attached to the gifted non-voting shares.
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Reference:
[1] Section 6, The Central Universities Act, 2009.
