AMITY UNIVERSITY RAJASTHAN

FINANCIAL MARKET REGULATIONS ASSIGNMENT

Brief description on Shares

SUBMITTED BY- Adnaan Belim SUBMITTED TO-Dr. Abhishek Baplawat

BCOM. LLB (Hons.)
8th semester
Introduction
The Companies Act, 1956, defines shares and types of share capital. A share in the share capital of the
company, including stock, is the definition of the term ‘Share’. This is in accordance with Section 2(84) of
the Companies Act, 2013. In other words, a share is a measure of the interest in the company’s assets held by a
shareholder. In this article, we will study different types of shares like preferential and equity shares. Shares
also dictate who has majority ownership, control and voting rights in a company. 

Definition of share
A share is a stock of a company. Each share forms a unit of ownership and is offered for sale when more
capital is required by the company. Only companies limited by shares have share capital.

Kinds Of Share Capital

According to Section 43 of the Companies Act, 2013, the share capital of a company is of two types:
 Preferential Share Capital
 Equity Share Capital

Preferential Share Capital

Preference shares are preferential in nature. In the events of liquidation of the company, the preferential
shareholders are paid out first after settling the debts of the creditors of the company. However,
preference shareholders do not get a voting right. There are different types of preference shares including:

1. Cumulative Preference Shares: A cumulative preference shareholder has a right to claim fixed
dividend of the current year out of the future profits. The dividend accumulates unless it is paid to
the shareholder. The accumulated arrears of dividend are to be paid before anything is paid out of
the profits to the holders of any other class of shares.
2. Non-cumulative Preference Shares: Non-cumulative preference shares are those shares wherein
the dividend is paid only out of the profits earned by the company in the financial year and cannot
accumulate to be paid out of profits in future. The shareholder cannot claim any dividend if the
company has not earned any profits in that financial year.
3. Participating Preference Shares: In case of participating shares, the share holders can claim a fixed
rate of dividend as well as participate with the equity shareholders in surplus profits remaining
after the dividend is paid to equity shareholders.
4. Non-participating Preference Shares: The shareholder can only claim a fixed rate of dividend and
cannot participate in surplus profits of the company.
5. Convertible Preference Shares: The shareholders get a right to convert their preference shares into
equity shares within a certain period of time.
6. Non-convertible Preference Shares: These preference shares cannot be converted into equity
shares at a later stage.
7. Redeemable Preference Shares: Redeemable preference shares can be redeemed after a certain
period or after giving a certain notice at any time at the will of the company out of the profits of the
company or sale proceeds of the new shares.
8. Irredeemable Preference Shares: Irredeemable preference shares are permanent in nature and
cannot be redeemed during the lifetime of the company.

Equity Share Capital – Equity Shares

All share capital which is not preferential share capital is Equity Share Capital. Equity shares are of two
types:
1. With voting rights
 2. With differential rights to voting, dividends, etc., in accordance with the rules.

The differences between equity and preference shares are:

Basis Equity Shares Preference Shares

Dividend is paid after all liabilities have

Dividend Priority over equity shareholders
been cleared
Capital is repaid after all other
Capital Priority over equity shares
shareholders and debts are cleared.
Rate of
Fluctuating Fixed
Dividend
Voting
Equity shares carry voting rights Normally do not carry voting rights
Rights
Arrears Generally, dividend gets accumulated until paid
No rights on claim of previous years
of except in the case of non-cumulative preference
dividend
Dividend shares

Allotment of Shares

An allotment of shares is an acceptance by the company of the offer to take shares. The offer of shares is
made on application forms supplied by the company. Generally, the offer is to accept a certain number of
shares, or such less number of shares as may be allotted and that offer is accepted by the allotment, either
of the total number mentioned in the offer or a lesser number, to be taken by the person who made the
offer. When an application money is accepted, it amounts to an allotment. This constitutes a binding
contract to make that number according to the offer and acceptance.

Process of allotment of shares

 Appointment of allotment committee

The secretary informs the Board, that the share applications are received and are ready for allotment. If
the issue is just subscribed or undersubscribed, the Board will do the allotment of shares, but if the issue is
oversubscribed, the Board appoints an allotment committee to do the allotment work. The allotment
committee will study the problem, prepare a report and submit to the Board.

 Board meeting for finalization of allotment formula

A meeting of the Board of Directors will be called to finalize the allotment formula, which is being prepared
by the allotment committee. If the shares are listed, the allotment formula is to be finalized with the
approval of the concerned Stock Exchange Authorities.

 SEBI's association with allotment work

A representative of SEBI needs to be associated while finalizing the allotment formula. For this, the
company has to request SEBI to nominate a public representation for allotment work. SEBI's nominee is
necessary when the issue is oversubscribed.

 Signature of chairman on the application and allotment list

The secretary has to see that every sheet of application and allotment list is signed by the chairman. The
secretary also has to sign the application and allotment lists.
  Resolution of the Board for allotment
The secretary has to see that the Board passes a resolution regarding the allotment of shares and
authorizing him to issue letters of allotment and letters of regret.

 Issue of letters of allotment and letters of regret

After the Board's resolution to allot shares, the secretary prepares the allotment list. Then he will send
allotment letters to those who have been allotted shares and regret letters to those who could not be
allotted shares.

 Refund / Adjustment of application money

The secretary has to make suitable arrangement for the repayment of application money sent by the
applicant. The refunded application money is made to those shareholders who could not be allotted
shares. The refund order is sent along with the letters of regret. If an applicant has been allotted a smaller
number of shares than the number applied for, the secondary has to adjust the excess amount with the
amount due on allotment.

 Collection of allotment money

The secretary has to make suitable arrangements with the Company's Bankers for the collection of
allotment money against the allotment letters.

 Arrangement relating to letters of renunciation

To renounce means to give up. Certain applicants who are being allotted shares do not want them, so they
return the shares back to the company. this is known as renunciation. The blank form of a letter of
renunciation and letter of request for allotment along with the letter of renunciation duly executed and the
original letter of allotment from the renounces, the secretary has to make necessary changes in the
Application of Allotment list in order to enter the names of the new allottees.

 Arrangement relating to the splitting of allotment letters

Splitting means putting the shares in one or more names. In case any allottee requests for a split of the
allotment letter, the secretary places such a request before the Board for approval. Once the Board
approves the splitting of the allotment letter, the secretary has to enter the details of the split in a separate
list of split allotments and issue the necessary 'split' letters.

 Submission of return of Allotment

Every company whether public or private and having a share capital and within 30 days of allotment is
required to send to the Registrar, a document known as the "Return of Allotment". The return of allotment
contains various details on allotment of shares such as the nominal value of shares allotted, names and
addresses of allottees, the amount paid or payable on each share and particulars of bonus shares and
shares issued at discount. The secretary has to see that these documents are prepared and submitted in
time to the Registrar.

 Preparation of Register of members and issue of share certificates:

The secretary has to prepare the Register of members from the Application and Allotment lists. He has to
see that the shares certificates are properly printed, sealed, signed and distributed to all the allot-tees
within three months after the allotment of shares. He has also to see that the share certificates are issued
against the letters of allotment.

Transfer and Transmission of shares

Transfer of shares
1.Instrument for Transfer of Share is compulsory: Section 56 provides that a company shall not register a
transfer of shares of, the company, unless a proper transfer deed duly stamped and executed by or on
behalf of the transferor and by or on behalf of the transferee and specifying the name, address and
occupation, if any, of the transferee, has been delivered to the company, along with the certificate relating
to the shares, or if no such certificate is in existence, along with the letter of allotment of the shares.
2. Time Period for deposit of Instrument for Transfer: An instrument of transfer of shares with the date of
its execution specified thereon shall be delivered to the company within sixty (60) days from the date of
such execution by or on behalf of the transferor and by or on behalf of the transferee.
3. Value of share transfer stamps to be affixed on the transfer deed: Stamp duty for transfer of shares is
25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-
01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.
4. Time limit for issue of certificate on transfer (Section-56(4)): Every company, unless prohibited by any
provision of law or of any order of any Court, Tribunal or other authority, shall, within One month deliver,
the certificates of all shares transferred after the application for the registration of the transfer of any such
shares, debentures or debenture stock received.
5. Private company shall restrict right to transfer its shares: Entire shareholding of a private company may
be owned by a family or other private group. Section 2(58)(i) of the Companies Act, 2013 provides that the
Articles of private company shall restrict the right to transfer the company’s shares.
6. Restriction on transfer in Private Company not applicable in certain cases: Restriction upon transfer of
shares is in private company are not applicable in the following cases:—
(i) on the right of a member to transfer his/her shares cannot be applicable in a case where the shares are
to be transferred to his/her representative(s).
(ii)in the event of death of a shareholder, legal representatives may require the registration of share in the
names of heirs, on whom the shares have been devolved.
7. Time Limit for Refusal of registration of Transfer: Provisions related to Refusal of registration and
appeal against refusal is given in Section 58 of the Companies Act, 2013. Power of refusal to register
transfer of shares is to be exercised by the company within thirty (30) days from the date on which the
instrument of transfer or the intimation of transfer, as the case may be is delivered to the company.
8. Time Limit for appeal against refusal to register Transfer by Private Company: As per section 58(3), a
transferee of shares may appeal to the Tribunal against the refusal within a period of thirty (30) days from
the date of receipt of the notice from the Company or in case no notice has been sent by the company,
within a period of sixty (60) days from the date on which the instrument of transfer or the intimation of
transmission, as the case may be, was delivered to the company.
9. Time Limit for appeal against refusal to register Transfer by Public Company: As per section 58(4), a
transferee of shares may, within a period of sixty (60) days of such refusal or where no intimation has been
received from the company, within ninety (90) days of the delivery of the instrument of transfer or
intimation of transmission, appeal to the Tribunal.
10. Penalty for Non-compliance: Where any default is made in complying with the provisions related to
transfer of shares, the company shall be punishable with fine which shall not be less than Rs. 25,000/- but
which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable
with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.

Transmission of shares
Transmission of share means transfer of title to shares by operation of law. This type of situation arises
when a shareholder died, inheritance, bankruptcy, marriage and succession.
On death of the shareholder, legal heirs are required to submit a request letter supported by an attested
copy of the death certificate of the deceased shareholder and the relevant share certificate.
On transmission of shares, the person to whom shares are transmitted became the new registered
shareholder of the company and is entitled to all the rights and subject to all liabilities as such shareholder.
Execution of transfer deed not required in case of transmission of shares. Transmission will be registered
by a company in the registrar of members.

Provisions related to transmission of shares are specified in section 56 of Companies act 2013. As per
section 56 (4) of companies act 2013, every company shall, unless prohibited by any provision of law or any
order of Court, Tribunal or other authority, deliver the certificates of all securities transmitted within a
period of one month from the date of intimation of transmission under sub-section (2) in case of
transmission of securities.

Following documents are required to accompany the application to transmission by the legal
representative;
1. Certified copy of death certificate
2. Request for transmission signed by the legal heir(s) / Legal Representatives /claimant(s)
3. Succession certificate or Letter of Administration or Probate of Will;
4. Original Share Certificate
5. Specimen signature of the successor (s)

On the basis of application, company record the particulars of death certificate and if everything found to
be ok then the company shall approve the transmission request and register shares in the name of the
survivor or legal heir as the case may be.

In case the company is not satisfied then within 30 days from the date on which the intimation of
transmission is delivered, the company shall communicate such refusal to the concerned person.

The company may require documentary evidence to prove the identity of the legal heir or other claimants,
such as PAN Card, Passport, Ration Card, Voter’s Identity Card, etc.

In case the deceased person is holding shares in more than one company the legal heirs has to follow the
same procedure with each of the companies by submitting all required documents along with death
certificate and share certificate.

Where any default is made in complying with the provisions of Section 56 (1) to 56 (5), the company shall
be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to
five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall
not be less than ten thousand rupees but which may extend to one lakh rupees – Section 56(6).