Explain the various kinds of share capital. Discuss in brief the procedure for issue of shares.

Or

What do you mean by preference and equity shares? How can these shares be issued?

Or

What do you understand by the term share? What are the various classes of shares which a company may issue?

Ans.

MEANING AND DEFINITIONS OF SHARE

Share is a part of company’s capital. Capital of the company is divided in the part of certain amount. A share, in a company, is meant not any sum of money but an interest measured by a sum of money and made up of diverse rights on its holders by the articles of the company which constitute a contract between him and the company.

According to Sec. 2(84) of the Companies Act, 2013, “share” means share in the share capital of a company and includes stock.

According to Justice Farewell, “A share is the interest of a shareholder in the company, .measured by a sum of money for the purpose of liability and dividends in the first place, and of interest in the second; and also consisting of a series of contracts as contained in the articles of association.”

According to the Supreme Court of, “By a share in a company is meant not any sum of money but an interest measured by sum of money and made up of diverse rights conferred on its holders by the Articles of the company which constitute a contract between him and the company.”

CHARACTERISTICS OF SHARES

Share is an undivided unit of certain amount of money. It is a part of capital. A person who holds the shares has some rights and liabilities. Share is a movable capital and it can be transferred by adopting a certain procedure. Generally, it has following characteristics:

(1) Movable and Transferable Asset- Shares are floating assets. Shares can be transferred from one person to another through the manner provided in the Articles of Association of the company. Shares are transferred through depository system.

(2) Indication or Allotment of Number – Each share is distinguished by its appropriate number.

(3) One Unit – Share is a unit of the share capital of the company having share capital.

(4) Issuance of Share Certificate – A share certificate is issued to the shareholders indicating holders name, number of shares, etc. It is prima facie evidence of his title thereto. Share certificate is only a documentary evidence of title, in the possession of the shareholder.

(5) Entry in Register of Members – Detail of shares held by the members and his address are entered in the register of members.

(6) Face Value – A price is printed on the face of the share, it is known is face value.

(7) Disclosure of Monetary Interest- Shares express members monetary interest with the company.

(8) Not Negotiable – Although shares are transferable but they are not negotiable instruments.

(9) Goods- Shares can be assumed as ‘goods’ under the Sale of Goods Act, 1930 as they can be sold and purchased and mortgaged like other goods.

(10) Two Types – There are two types of shares – (i) Equity shares, and (ii) Preference shares,

A share is an existing bundle of rights and liabilities as to the shareholder. They are mostly regarded as situated in the country in which they are registered. A share is evidenced by a share certificate.

SHARE CAPITAL

The term capital has various meanings. Share capital is not necessary for the company. But if MOA provides share capital it should be arranged. Such companies which are limited by guarantee or unlimited companies need not to have share capital.

TYPES OF CAPITAL

Following are the types of capital.

(i) Authorized or registered or nominal capital

(ii) Issued capital.

(iii) Subscribed capital

(iv) Called up capital

(v) uncalled capital

(vi) paid up capital

(vii) Unpaid capital

(viii) Reserve capital

KINDS OF SHARES

(1) Preference Shares – According to Section 43 of the companies Act, 2013 preference share capital means, that part of the share capital of the company which fulfils both the following requirements:

(a) that as respect of dividends, it carries preferential right to be paid a fixed amount or an amount calculated at a fixed rate,

(b) that as respect of capital, it carries on a winding up or repayment of capital, a preferential right to repay the amount of the capital.

(2) Equity Shares – According to Section 43 of the Companies Act, 2013 share capital means all share capital which is not preference share capital.

KINDS OF PREFERENCE SHARES

These are as under-

(i) Simple or non-cumulative preference shares

(ii) Cumulative preference shares

(iii) Convertible preference shares

(iv) Non-convertible preference shares

(v) Redeemable preference shares

(vi) Irredeemable preference shares

(vii) Participating preference shares

(viii) Non- participating preference shares.

Provisions regarding Redeemable Preference Shares

A company limited by shares may, not issue preference shares which are irredeemable.

Provided that –

(i) no such shares shall be redeemed except out of profits of the company.

(ii) no such shares shall be redeemed unless they are fully paid;

The redemption of preference shares may be effected on such terms as may be provided by the Articles.

The redemption of preference shares by a company shall not be taken as reducing the amount of its authorized share capital.

PROCEDURE FOR ISSUE OF SHARES

Following procedure is adopted for issue of shares –

(i) A Board meeting should be called.

(ii) Company secretary shall form an application.

(iii) Application must be certified by an auditor.

(iv) Fee should be deposited.

(v) Two copies of MOA and AOA should be called.

(vi) Latest audited B/S should be filed.

(vii) For the information prospectus should be filed to the GAG.

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