What do you mean by the term 'Share'? Discuss the type of shares

What do you mean by the term ‘Share’? Discuss the type of shares, which can be issued under The Companies Act, 2013.

Ans.

SHARE

Share means a share in the Share Capital of a Company and includes stock except where a distinction between stock and share is expressed or implied. A share is not a sum of money, but is an interest measured by a sum of money, and made up of various rights contained in the contract. Really speaking, a share is an interest of the Shareholder in the company, measured by a sum of money, for the purpose of liability in the first place and of interest in the second place.

A share is a right to a specified amount of the share capital of a Company. carrying with it certain rights and liabilities, while the company is a going concern and in the winding up. It represents the interest of the holder measured for purposes of liability, and dividend by a sum of money. Stock: Stock is a set of shares put together in a bundle. It is expressed in money. When shares become fully paid, if the Articles of the Company allows, it may convert the shares or any class of them into stock. Shares may be partly paid up while stock is always fully paid. Shares possess a distinct number while stock has no number.

KINDS OF SHARES

(1) Equity Shares: All the shares are Equity Shares which are not Preference Shares. Usually, equity shareholders take dividend out of profits after payment of dividend to Preference Shareholders. Equity shares have the voting right and this voting right will be proportionate to one’s share of the paid up equity capital. However, as per Section 43 of Companies Act, 2013 new issues of equity share capital may be of two kinds viz.: (i) With voting rights and (ii) with differential rights as to dividend, voting or otherwise.

(2) Preference Shares: Preference Shares are those shares which have a preferential right for payment of dividend and payment of capital over other classes of shares. Preference Shareholders are entitled to participate in the excess assets pari passu with the Equity Shareholders if no contrary provision is made is the Memorandum and Articles of Association.

TYPES OF PREFERENCE SHARES

Following are the various types of Preference Shares:

(i) Cumulative Preference Shares: When profits of a Company are distributed amongst the shareholders, the holder of these shares is entitled to a dividend at a fixed rate. If current year’s profits are insufficient, such dividend is payable out of future profits. All the arrears of dividend on these shares must be paid before the other shareholders can participate in the profits. Unpaid cumulative preference dividends are not liabilities in the ordinary sense; the liability is contingent upon the earning of sufficient profit to pay the dividends and upon the declaration of it. Preference Shares are assumed to be Cumulative if contrary provision is not made in Memorandum or Articles of Association.

(ii) Non-Cumulative Preference Shares: Holders of these shares are entitled to take dividend only out of current year’s profit. If in any year due to shortage of profit dividend is not paid to them, their current year’s dividend will not extend to future years’ profit.

(iii) Participating Preference Shares: Normally, Preference Share-holders are entitled for a dividend at a fixed rate, but sometimes these shareholders are also entitled to participate in that surplus profits which remains even after payment of dividend to Equity Shareholders. Such preference shares are known as participating preference shares.

(iv) Non-Participating Preference Shares: Those preference shares which do not carry the right to share in surplus profit are known as Non-participating preference shares.

(V) Redeemable Preference Shares: If a company is authorized by its Articles of Association, it may issue Redeemable Preference Shares. These shares are issued for a fixed term, and they are paid off after the expiry of this term. Every Balance Sheet of a Company which has issued such shares must show the dates on which they may be redeemed. It is to be noted that as per Section 55(2) of Companies Act, 2013, a company can issue preference shares which are liable to be redeemed within a period not exceeding 20 years. However, in case of infrastructure profits this period may exceed subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders.

(vi) Irredeemable Preference Shares: Irredeemable Preference Shares are those shares the amount of which cannot be returned by the company to the holders of such shares unless the company is wound up. Now such shares cannot be issued in India.

(vii) Convertible Preference Shares: Convertible Preference Shares are those shares that are entitled to be converted into equity shares within a certain period of time.

(vii) Non-Convertible Preference Shares: Non-Convertible Preference Shares are those preference shares shares which do not carry a right to be converted into equity shares.