COMPANY LAW

SHARES AND SHARE CAPITAL

PRESENTED BY
ARSHIYA
DARSHAN
NARESH
LAKSHMI
RAGHU
VINOD
 SHARES
DEFINITIONS

• The Companies Act defines a share as “Share in

the Share Capital of the company, and includes
stock except where a distinction between stock
and share is expressed.”

• According to J.Farwell a share is “ the interest

of a shareholder in a company measured by the
sum of money, for the purpose of liability in the
first place and of interest in the second.”
NATURE OF A SHARE

• Shares in India, are both goods as well as chose – in – action. It

is bundle of rights, each one of which is a legal chose – in –
action. The legal title to the share is vested in the person
entitled to it, either by the company or by transfer from a
former holder.

TYPES OF SHARES

• Before passing Companies Act, 1956, shares used to be in three

types

Ordinary Shares
Preference Shares
Deferred Shares

• After Companies Act , companies issued only two types of

shares

Preference Shares
Equity Shares
ALLOTMENT OF SHARES

• Offers are made on application forms

supplied by the company. When an
application is accepted, it is an allotment.
“Allotment” is generally neither more nor
less than the acceptance by the company of
the offer to take shares.

• It is an appropriation out by the directors…

of shares to a particular person.

• A valid allotment has to comply with the

requirements of the Act and the principles
of the law of contract relating to
acceptance of offers.
STATUTORY RESTRICTIONS ON ALLOTMENT

• Minimum subscription and application money [s.

69]: It means the amount which is, in the estimate of the
directors, enough to meet the needs like purchase price of any
property partly or wholly, preliminary expenses, and working
capital.

• Statement of lieu of prospectus [s.70]: Where

prospectus has not been issued, no allotment shall be made unless
at least three days before a statement in lieu of prospectus has
been filled with the register.

• Opening of subscription list [s.72]:Shares can not be

allotted at once after the issue of the prospectus . No allotment
shall be done until the beginning of the 5th day from the date of
the issue of the prospectus.
• SHARES TO BE DEALT IN ON STOCK
EXCHANGE [S.73] :
Every company intending to offer
shares to the public by the issue of a
prospectus has to make an
application before the issue to any
one or more of the Stock Exchanges
for permission for the shares to be
dealt with at Stock Exchange. An
allotment shall be void if the
permission has not been granted.

• over-subscribed prospectus [s.73(2-

A)] : where the permission of a stock
exchange has been granted and,
therefore , the allotment completed
valid, the prospectus being over-
subscribed portion of the money
received must be sent back to the
applications forthwith.
GENERAL PRINCIPLES

• ALLOTMENT BY PROPER AUTHORITY : An allotment

must be made by a resolution of the board of
directors “Allotment is a duty primarily falling upon
directors” and this can be delegated except in
accordance with the provisions of the articles.

• WITHIN RESONABLE TIME : Allotment must be done

within a reasonable time, otherwise the application
lapses. On the expiry of reasonable time section 6 of
the Contract Act applies and the application must be
deemed to have been revoked.
• MUST BE COMMUNICATED : The
allotment must be communicated to the
applicant. Posting of a properly
addressed and stamped letter to
allotment is communication even if the
letter is delayed or lost in the course
of post.

• ABSOLUTE AND UNCONDITIONAL

:Allotment must be absolute accordance
with the terms and conditions of the
application, if any. The applicant must
promptly reject the allotment when
shares have been allotted to him
without his conditions being fulfilled.
CERTIFICATE OF SHARES

• An allottee of shares is entitled to

have from the company a document
called share certificate, clarifying that
he is the holder of the specified
number of shares or debentures or
debenture-stock is obliged to deliver to
the allottee a certificate of shares
within three months of allotment.
SHARE CERTIFICATE
Transfer of shares
• When joint stock companies were established, the
great object was that the shares should be capable
of being transferred. Accordingly, by section 82 of
the companies Act, it is provided that the shares of a
member in a company shall be moveable property
capable of being transferred in the manner provided
by the articles of the company.

RESTRICTIONS ON THE TRANSFER OF SHARES

• Is open to a company to restrict the right of its
members to transfer their shares. The article of a
private company as against those of a public company
contain more rigorous restrictions on its members to
transfer their shares.
BROKERAGE
• The Company Act, 1956, permits brokerage to
be paid as has been lawful for a company to pay.
It has been recognized in Metropolitan Coal
Consumers Assn vs. Scringeour that reasonable
brokerage should always be allowed.

• Brokerage is different from underwriting

commission. A broker does not undertake to
subscribe for shares to the extent of public
default.

• Brokers are professional men, such as “stock-

brokers, bankers and the like, who exhibit
prospectus and send them to their customers,
and by whose mediation the customers are
induced to subscribe.
 ISSUE OF SHARES AT PREMIUM
• If the market exists, a company
may issue its shares a price higher
than their nominal value. There is
no restriction on the sale of share
at a premium.

• SEBI guidelines have to be

observed as they indicate when an
issue has to be at par and when
premium is chargeable.

• Premium may be received in cash or

kind. An amount received extra
than the nominal value due to the
premium should be carried to the
share premium account.
 SHARE CAPITAL
• Share capital means the capital raised by a company by the
issue of shares.

kinds OF SHARE CAPITAL

• The capital of the company may be two types:

Preference Share Capital : In case of a company

limited by shares, that part of the capital of the company
which carries a preferential right as to payment of
dividend during the lifetime of the company and repayment
of capital on winding up of the company is known as
Preference Share Capital.

Equity Share Capital : All the share capital

which is not preference share capital is known as equity
share capital. Capital which does not carry any preferential
rights.
 TYPES OF CAPITAL:

• Authorised Capital
• Issued Capital
• Subscribed Capital
• Paid up Capital
• Reserved capital
PREFERENCE SHARE CAPITAL

• Preference share capital means that part of

the share capital of a company which fulfils
both the following requirements:

 During the continuance of the company it

must be assured of a preferential dividend.

 On the winding up of the company it must

carry a preferential right to be paid up.
TYPES OF PREFERENCE SHARES

Preference shares may be either

• Cumulative
• Non-Cumulative

But in the absence of any clear provision to

the contrary, preference shares are
presumed to be cumulative.
 ORDINARY SHAREHOLDER COMPARED
WITH PREFERENCE SHAREHOLDER

PREFERENCE SHARES ORDINARY SHARES

• These are more like • Ordinary shareholders cannot
debentures than like shares. be paid back except under a
They are entitle to a fixed scheme involving reduction of
rate of interest. The company capital.
may choose them to pay them
back. • Ordinary shareholder is
• The right to vote restricted entitled to vote on all matters
to resolutions which directly affecting the company.
affect the rights attached to
his preference shares, except
when dividend has remained • Rate of income and risk
unpaid. involved is more.
• Offers profitable and safe
source of investment.
VOTING RIGHTS
• EQUITY SHAREHOLDERS RIGHTS[sec. 87 (1)] :
An equity shareholder of a company limited by
shares has a right to vote on every resolution
placed before it. His voting right on a poll is in
proportion to his share of the paid-up equity
capital of the company.
• Preference share capital[sec. 87 (2)] : A
preference shareholder has the right to vote on
those resolutions which directly affect his
rights. Any resolution for winding up the company
or for the repayment or reduction of its share
capital is deemed to directly affect the rights of
the preference share holder.
 FURTHER ISSUE OF CAPITAL
Further issue of capital of a company may take place
• By allotment of new shares [sec. 81(1) to (3)]: A
public company limited by shares may, at any time,
increase its subscribed shares capital within the limit
of authorized capital by issuing new shares. It is for
the directors to decide whether an increase in the
subscribed capital of the company is necessary or not.

• by conversion of debentures or loans into shares

[sec. 81(4) to(7)] : where a company has taken loan
from the central government by issuing any
debentures or otherwise, the government may, in the
public interest , convert such debentures or loans into
shares in the company.
Alteration of capital clause

Alternation in the capital clause of the

memorandum may be of the following types:

• Alteration of share capital[sec. 94-97]

• Reduction of capital[sec.100-105]
• Reserve share capital or reserve
liability[sec.99]
• Variation of the rights of the share
holders[sec.106-107]
• Reorganization of capital[sec.390-391]
 ALTERATION OF CAPITAL
A limited company having a share capital
may, if so authorized by its Articles, alter
its share capital as follows

• Increase nominal share capital by issuing

new shares

• Consolidate and divide all or any part of its

share capital into shares of larger amount

• Convert fully paid-up shares into stock or

vice versa

• Sub-divide its shares, or any of them, into

shares of smaller amount, and

• Cancel share which have not been taken up

and diminish the amount of its authorized
capital by the amount of the shares so
cancelled.
REDUCTION OF CAPITAL
Under sec 100, a company limited by shares having a
share capital may reduce its share capital. Subject to
the confirmation by the court, in any of the following
three ways:

• It may extinguish or reduce the liability on any of its

shares in respect of share capital not paid-up; or

• It may either with or without extinguishing or

reducing liability on any of its shares, cancel any paid-
up capital which is loss, or is unrepresented by
available assets; or

• It may, either with or without extinguishing or

reducing liability on any of its shares , pay-off any
paid-up share capital which is in excess of the wants
of the company.
Reserve share capital or reserve
liability
• This section provides
that by passing a
special resolution, a
company may
determine that any
portion of its share
capital which has not
already been called up
shall not be capable of
being called up except
in the event of
company's winding up.
• Such capital is called
reserve share capital.
Variation of the rights of share holders

Share capital of a company is divided into different

classes of shares which may have different rights
attached to them. if the company intends to change
the rights of any class of share holders, the following
procedure has to be followed:

• Variation not prohibited

• Special resolution
Reorganization OF CAPITAL
The reorganization of share
capital of a company may take
place

• By the consolidation of shares of

different classes; or
• By the division of shares of one
class into shares of different
classes; or
• By both these methods.

The reorganization of the share

capital of a company may be
proposed

• Between a company and its

creditors or any of class of them;
or
• Between a company and its
members or any classes of them.
 REFERENCES
• COMPANY LAW - AVTAR SINGH

• COMPANY LAW - R P & S N MAHESHWARI

• ELEMENTS OF COMPANY LAW – N.D.KAPOOR

• COMPANY LAW – ASHOK K BAGRIAL

THANKS TO
ONE AND
ALL