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Shares and Share capital

Definition: Sec 2(84) Share means a share in the share capital of the company and include stocks

Meaning: A share is the smallest unit into which the share capital of a company is divided.

Kinds of share capita Sec 43: Shall be of two kinds

a) Preference share capital


b) Equity share capital
a) With voting rights; or
b) With differential rights as to dividend, voting or otherwise in accordance with such rules as
may be prescribed by CG

Preference Share capital: which carries or would carry a preferential right with respect to:

a) Payment of dividend
Such preferential rights as to payment of dividend may be-
a) With respect to fixed rate
b) With respect to fixed amount
c) Free of income tax
d) Subject to income tax
b) Preferntial right as to repayment of capital in case of winding up of the company.

Share capital shall be deemed to be preference share capital whether it entitle one or both below
mentioned rights.

a) Participation in surplus profit: Right to participate in surplus profit with the equity share capital
in the surplus profit in the case of payment of dividend.
b) Participation in surplus asset: Right to participate with the equity share capital in the surplus
asset of the company remain after the entire share capital is repaid in the case of winding up.

Equity Share capital: share capital which is not preference share capital.

Legal requirement for issue of equity share with differential rights:

a) Must be authorized by the Article. OR must be passed by postal ballot if,


b) Must be authorized by passing Ordinary Resolution. Provison of sec 110 are applicable to CO.
c) Maximum: shall not exceed 26 % of the total post-issue paid up equity share (Including equity
share with differential rights issued at any point of time)
d) consistent track record of distributable profits for the last 3 years
e) Company has not defaulted in filing Financial statement and annual returns for the last 3
Financial Years.
f) No default :
a) in the payment of a declared dividend or
b) repayment of matured deposit or interest on deposites or
c) redemption of debenture or interest on debemture
d) redemption of preference share or
e) Repayment of term loan from PFI or SFI or scheduled Bank or interest payable thereon.
f) payment of statutory payments relating to its employee.
g) Crediting the amount in Investors Education and Protection fund.
However
Company may issue share with differential rights upon expiry of 5 years from the end of FY
in which such default was made good.
h) Not penalized: by court or tribunal in last 3 years of any offence under the
a) Reserve Bank of India
b) The securities and Exchange Board of India
c) The Securities Contract Regulation
d) The Foreign Exchange management
e) Any other special act under which the company is being regulated.

Nature of Rights: The holder of equity share with differential rights shall enjoy all other rights such as
bonus shares, right shares etc.which the holder of equity shares are entitled to.

No conversion: Shall not convert existing equity share capital with voting rights into equity share capital
carrying differential rights and vice versa.

Voting Rights of Shareholders:

Voting Rights of Equity shareholders

a) equity share capital shall have right to vote on every resolution placed before the company and
b) voting right on poll shall be in proportion to paid-up equity capital

Voting Rights of Preference Shareholders:

a) vote only on resolutions which directly affect rights attached to preference shares and,
b) resolution for winding up of the company
c) voting right on poll in proportion to paid-up preference capital

Where dividend not been paid for a period of 2 years or more such class of preference shareholders
have right to vote on all the resolutions placed before the company

Restriction on voting rights


1. on which any calls or other sums presently payable by him have not been paid or company
exercised right of lien.
2. nor on any other ground

Conditions for varying rights:


1.Consent required for Variation:
a) Consent in writing of the holder for not less than th of the issued shares of the class
b) SR of that
2. If power to make such variation is contained in the memorandum or article. Or
3. such variation shall not prohibited by terms of issue of such shares (In case no such power is
contained in Mamorandum or Article)

Consent of shareholder of other class also required: If consent variation of right of one class affect the
right of other class then.

a) Consent in writing of the holder for not less than th of the issued shares of the class also be
rquired
b) The provision of this section apply to such variation.

Rights of Dissentient Shareholders:


Who can make application: . shareholders holding atleast 10% of class of shares
Time Limit for making application: Within 21 days of consent of holders / passing of resolution apply to the
Tribunal for cancellation of variations.

4. Action of Tribunal:
a) either confirm variation or disallow
b) Decision of the Tribunal is final.

order be filed with ROC within 30 days after service on the Company.

Redeemable Preference Shares


Sec 55

Terms Of Preference share:


Issue of irredeemable preference share is prohibited
Term for preference share shall not exceed 20 years

May exceed 20 years
a) Such preference shares are issued for infrastructural project as specified under scheduled VI
b) The company shall redeem at the option of such preference shareholders on an annual
basis such percentage of preference share as may be prescribed

Power in Article: Article must authorize to issue preference share.


Compliance of Rule: The condition prescribed by CG under the companies (Share capital and Debenture)
Rules 2014 must be compliance with.

Conditions for Redemption of Preference share:


Power in Article: No authorization is required in Article to redeem preference share

Fully paid up shares: Only fully paid up preference shares can be redeemed

Sources of redemption: a) out of profit available for redemption

c) Out of fresh issue of share made for the purpose of such redemption
Premium Payable on such redemption:

In case of company whose financial statement In any othe case.


comply with AS prescribed u/s 133
Premium payable on redemption may be
a) Premium payable on redemption shall provided for.
be a) Out of profit of the company
Provided out of profit. b) Out of securities premium account
b) In case of Preference share capital
issued
Before commencement of this Act.
a) Out of profit of company
b) Out of securities premium account

Creation of CRR
a) Creation of CRR is mandatory if the preference shares are redeemed out of profit.
b) Amount to be transferred to CRR out of profit of the company = Nominal value of preference
shares redeemed out of profit.

Utilisation of CRR:
a) Only for the purpose of issuing fully paid bonus shares to the members.
b) All the provisions of this Act realating to reduction of preference share capital shall apply to CRR,
as if CRR were the paid up capital of the company.

Notice to Registrar:
As per sec 64, notice of redemption to preference share is to be given to ROC
- Within 30 days..in prescribed formalong with copy of altered memorandum.

Issue of Share at Premium