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Capital

Capital

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Categories:Types, Business/Law
Published by: shakti ranjan mohanty on Aug 14, 2011
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CAPITAL, SHARES AND SHAREHOLDERS
 
 SHARE CAPITAL
 The term "capital', in connection with company formation, may mean any one of the following things :1. Nominal Capital or Authorised Capital Nominal Capital or Authorised Capital is the total face value of the shares which the company is authorisedto issue by its memorandum of association. The total share capital of a company is also called its RegisteredCapital.The full authorised capital may not be needed by a company at the time it commences business. A companymay issue less than the authorised capital, reserving the right to raise further moneys by the sale of theunissued shares at a later time.2. Issued CapitalIssued Capital is that part of authorised capital which is actually offered to the public for sale.3. Subscribed CapitalSubscribed Capital is that part of issued capita( which is taken up and accepted by the public.4. Paid up CapitalPaid up Capital is the amount of money actually paid by the subscribers or credited as so paid.5.. Uncalled CapitalThe unpaid portion of the subscribed capital is called Uncalled Capital. A limited company may by specialresolution determine that a portion of the share capital, which has not beencalled up, shall not be called up except in case of Liquidation. Such uncalled capital is called ReserveCapital.
SHARES
 
Definition
 The shareholders are the proprietors of the company. Therefore a "Share" may be defined as an interest inthe company entitling the owner thereof to receive proportionate part of the profits, if any, and of a proportionate part of the assets of the company upon liquidation. A shareholder has certain rights andliabilities. Formerly it was thought that the shareholders' are the proprietors of the company. Nowadays,however, there has emerged a new concept of company. The views of the Supreme Court, in the case of 
 National Textile Workers' Union v. P. R. Ramakrishnan
are quoted in p. 542 subject to the control of theGovernment and social objectives of the nation.
F
eatures and Characteristics
 The main characteristics of shares are stated below.1. `A share is not a sum of money, but is
an interest 
measured in a sum of money and made up of variousrights, contained in the contract.'-=-Farwell J. in
 Borland's Trustee v. Steel Bros.
& Co.
 
2. A share is an interest having a money value and made up of 
diverse rights
specified under the Articles of Association.
Commissioner 
of 
 Income Tax v. Standard vacum Oil Co.
 3. The holder of a share has certain
rights, duties and liabilities,
as stated in the Companies Act and in theMemo and Articles of a company:4. A share is
transferable
and
heritable
subject to regulations framed in the Articles of Association of thecompany.5. The shares or 4 her interest of a member in a company
is movable property,
transferable in-the manner  provided by the articles of the company.-Sec. 82.6. The shares
must be numbered 
so as to distinguish them from one another.-Sec. 83.
Classification of Shares
 The Companies Act of 1956 provides that after the commencement of the Act, there can be only
two types
of shares capital, viz.,(a) Equity Shares Capital, and(b) Preference Share Capital. Preference SharesPreference shares are those shares which are given, by the articles of the company, two privileges viz.,(i) priority in the payment of dividends over other share, and(ii) priority as regards return of the capital in the event of liquidation.-Sec. 85.The holder of a preference share is entitled to receive dividend (at rates fixed by the articles) before anydividend is declared on the other shares.In the event of winding up, if surplus assets are available, the preference shareholders must first be given back thr amount which they paid on the share. The balance is available for distribution to the other shareholders.The voting power of a preference shareholder is limited.
Preference Shares can be classified as stated below.
 1. Cumulative or 
 Non-Cumulative:
In the case of cumulative preference shares, if the profit made by thecompany in a particular year is not sufficient to pay dividend at the prescribed rate, the shortage must bemade up out of the profits of succeeding years. The dividends accumulate. In non-cumulative preferenceshares such shortages are not required to be made up. Dividends which are not paid, do not accumulate butlapse.2.
 Participating Preference Shares
or 
 Non-Participating Preference Shares :
In the former type of sharesthe shareholder gets a part of the surplus profits beyond the amount or rate prescribed for them, if suchsurplus profits are available. Sometimes such preference shareholders are given the right to share in thesurplus asset upon liquidation if any such assets are available. In the latter type of preference share, theshareholder cannot participate in the surplus profits or in the assets in liquidation.
3. Convertible Preference Shares
or 
 Non-convertible Preference Shares :
The former types of shares can beconverted into equity shares, provided there is provision of such conversion
 
in the Articles of a company. The latter types of shares do not have the right of such conversion.4. A preference share may be
redeemable
or 
irredeemable.
The former could be redeemed i.e., purchased back by the company, subject to the conditions laid down in the articles and in the Act. All irredeemable preference share is one-which cannot be purchased back. New Section 80-A inserted by the AmendmentAct, ,1988 makes provision for redemption of irredeemable preference shares already issued by companieswithin a period of five years.
Equity Shares
 All shares other 
.
than preference shares are called Equity Shares. The rights and privileges of equityshareholders are laid down in the articles subject to the provisions of the Act.
VOTING RIGHT O
F
SHAREHOLDERS ''
 An equity shareholder is entitled to vote on every resolution , placed before the company. This right cannot be curtailed by the Articles. The number of votes a shareholder can cast is proportional to his-share of the paid up equity capital of the company.-Sec. 87(1).A preference shareholder is entitled to vote only on resolutions which directly affect the rights attached tohis preference shares and resolutions for winding up of the company. But if the dividend due on such capitalor any part of it remains unpaid, the preference shareholder become entitled to vote on every resolution.-Sec.87(2).The number of votes which a preference shareholder can cast, shall be in the same proportionas the capital paid up in respect of the preference shares bears to the total paid up equity capital of the company.-Sec.87(3).After the commencement of the Act of 1956, no
,
equity shares can be issued with voting rights in excess of those mentioned above.-Sec. 88.The rules regarding voting rights, stated above, do not apply to private companies, other than privatecompanies which are subsidiaries. of public companies.-Sec. 90.The articles of a company may provide that a member shall not exercise voting power in respect of a shareon which a call, or any other sum due to the company, has not been paid. No other restrictions on votingright can be imposed.-Sections 181, 182.
Legal Decisions :
 In English courts under the Companies Act of U. K. the following decisions were given :(1) The holder of a share and whose name is included in the register of members, is the only person entitledto vote at the general meeting. Such a person is entitled to vote at a company meeting, even though, the person is a bankrupt.
Wise v. Landsell 
 (2) When exercising the right of voting, the question of voter's motive is irrelevant.
 Pender v. Lushingtion
 
RIGHTS O
F
SHAREHOLDERS
 The Companies Act gives various rights to the shareholders of a company. The important rights arementioned below.l. A shareholder can
attend and vote in the general meetings
of the company. He is entitled to receive noticeof all such meetings. (Voting Rights.-See above).

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