SHARE AND SHARE CAPITAL

Abstract:

Shares generally represents the ownership of the company. The one who bought the shares is

called share holder. A share can also become the member of the company if he signs the

memorandum of association. There are different types of shares based on the company’s

requirement and the share holder’s interest i.e. equitable shares, preference shares,

cumulative and non cumulative preferential shares, participative and non participative

preferential shares, convertible and non convertible preferential shares, redeemable and non

redeemable preferential shares . share capital is the money raised by company by issuing

shares and debentures for the functioning of the company. Share capital is something like

investment made by the share holders. By this company gets the money, shareholder gets the

ownership in the company.

Keywords:

Companies act, preferential share, equity shares, company, share holder, capital, members of

company

Introduction:

According to section 2(84) of companies act, 2013 ‘share’ means a share in the share capital

of a company and includes stock, it also represents the interest of a share holder in the

company. Share capital of a company refers to the amount invested in the company for it to

carry out its operation. That operation generally means investing in fixed capital and working

capital and other small day to day expenses. If the capital is 10,000 and the face value of each

share should be 10 and no. of share can be provided will be 1000.

Nature of share:

A. A share is a right to a specified amount of shares capital of a company, with it certain

rights and liabilities while the company is a going concern and in its winding up

B. A share is a right to participate in the profits made by company

C. According to the companies act ,2013, share , debentures or the other interests of any

member of company in a company is a movable property transferable in the manner provided

by article of the company

D. In India, share is regarded as goods (According to the Sale of Goods Act, 1930, “Goods”

means any kind of movable property other than actionable claim and money, and includes

stock and shares.)

Classification of share capital:

1. Nominal, authorized or registered capital:

This is defined under article 2(8) of companies act ,2013. The capital with which the

company is registered with ROC (registrar of companies) and authorized to raise within

lifetime.

2. Issued capital:

This is defined under article 2(50) of companies act 2013. The capital which is part of

authorised share capital raised by issue of equity shares at anytime

3. subscribed capital:

This is defined under article 2(86) of companies act 2013. It is that part of the issued capital

at face value which has been subscribed for or taken up by the subscribers by the members of

a company.

4. unsubscribed capital:

It is that part of the issued capital at face value which has not been subscribed for or taken up

by the subscribers by the members of a company.

5. called up capital:

This is defined under article 2(15) of companies act 2013. It is that portion of the subscribed

company capital which has been called up or demanded on the shares by the.

6. paid up share capital:

This is defined under article 2(64) of companies act 2013. The part of subscribed capital on

which money is paid

Types of share capital:

section 43 of companies act 2013 , explains preferential and equitable share capital

A. Preference share capital:

? Preference shares are those which will have preference over equity share holders for

payment of dividend and repayment of capital

? They receive dividend either at fixed rate or fixed amount

? Usually they have no voting right , but they have right to receive notice of general

meeting and attend general meetings .

TYPES OF PREFERANCE SHARES:

1. Participative and non participative preferential shares:

Participate preference shares have additional benefit of having part in surplus

profit or surplus assets in addition to preferential dividend. non participative

preferential shares doesn’t have this benefit and they only get the preferential

dividend.

2. Cumulative and non cumulative preferential share:

Cumulative preferential share holder have benefit that if any dividend

payments have been missed in the past, the dividends owed must be paid out

to them first. For non cumulative preferential shareholders, if company does

not pay dividend in current year, claim preference shareholder is lost to that

extent.

3. Convertible and non convertible preferential shares:

Convertible preference shares possess an option or right whereby they can be

converted into an ordinary equity share at some agreed terms and conditions.

Convertible preferential shares are divided into types – partially convertible

preferential shares and fully convertible preferential shares .Non-Convertible

preference shares do not have the option to convert but has all other normal

characteristic of a preference share

4. Redeemable and non redeemable :

Redeemable preference share has a maturity date on which date the company

will repay the capital amount to the preference shareholders. The paying back

of capital is called redemption dividend.

? Preferences share shall be redeemed within a period not exceeding 20 years

(however infrastructure companies can issue preferences shares redeemable

within a period notexceeding 30 years).

? Irredeemable Preference Share do not have any maturity date and are

repayable only at the time of winding up of the company. However as per

section 55 of the Companies Act, 2013 no company can issue irredeemable

preference shares

B. Equity share capital :

? Equity share capital represents ownership in company

? There will be no fixed dividend

? There will be no priority in payment of dividend / repayment of capital

? There will be high risk and high return

? They have voting rights, right to receive notices and attend general meetings

? There are two types of equity share capital –

1. ordinary equity share capital :

ordinary or equity share is the commonest variant of stock that a public

company issues to raise capital. These shares generally have one vote for one share

2. Differential voting rights ( DVR) equity share capital:

Differential voting rights are those shares that give the holder of the shares the

differential rights related to voting, i.e. either more voting rights or less voting

rights compared to the ordinary shareholders of the company.

Research methodology:

This research entails through a thorough examination of companies act, 2013. This paper

consists of detailed study on types and classification of shares and share capital. This aims at

providing insightful knowledge to its readers about how shares work in the corporate world

and benefits.

Conclusion:

Basically, this article describes about the fund raising for the company i.e. share capital, by

selling the ownership in the company i.e. shares. This happens in every company, every

business needs funds for daily activities some companies takes credits from banks , some

companies issues debentures , some companies issues shares

References:

1. https://blog.ipleaders.in/shares-and-share-capital-of-the-company/

2. https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf