Share Capital and Debentures

A share has been defined under Section 2(84) of the CA 2013 as a share in in the share
capital of a company, and includes stock except where a distinction between stock and
shares is express or implied.
The word Capital herein for company law, means the share capital of the company.
The Companies Act under Section 43 permits issuance of two types of shares only:
1. Equity Share Capital –
(i) With voting rights; or
(ii) With differential rights as to dividend, voting or otherwise in accordance with
such rules and subject to such conditions as may be prescribed.
As per the explanation provided to Section 43, equity share capital of any company limited
by shares is all that shares which are not preference share capital. Dividend is paid to equity
shareholders after payment of dividend to preference shareholders. In the event of winding
up of company, they are ranked after the preference shareholders.
Equity share capital may be with different or equal voting rights as prescribed under Rule 4
of Companies (Share Capital and Debentures) Rules, 2014. No company limited by shares
shall issue equity shares with differential rights as to dividend, voting or otherwise, unless
the following conditions are complied with:

2. Preference Share Capital

The capital that a company raises through the issuance of preference shares is termed as
preference share capital.

Types of Preference Shares:

The following are the major types of preference share –

 Cumulative Preference Shares

 Non-cumulative Preference Shares

 Redeemable Preference Shares

 Compulsorily Convertible Preference Shares

It must be noted that dividends paid on preference shares are not deducted from taxes. Also,
redeeming such shares creates a financial burden on the company and erodes its capital.
Similarly, when profits are earned, companies must pay off the arrears dividends, especially
in case of Cumulative Preference Shares.

Difference between PREFERENCE SHARES AND EQUITY SHARES

Other differences to add in case of long question:
Definition Equity share is the Preference shares are the shares which
foundation of the promise the holder a preference over the
company as it raises equity shares. These can be converted to
fund. These cannot be equity shares.
converted to preference
 shares.

Types of Shares These are considered as These come in various types like:
ordinary shares and Convertible and non-convertible
thus they do not have Cumulative and Cumulative and non –
any types in specific. cumulative.

Participation rights They are primarily Do not have any participation rights in the
responsible for the company’s management.
management of the
company.