Share Capital

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Alteration of capital
 Lecture objetcives
• Identify the various options available for
raising capital
• Comprehend the legal procedure for
dealing with alteration and reduction of
capital
(i) Share Capital : Meaning

Share Capital means the capital raised

by a company by the issue of shares.
ii) Share : Meaning (means a share in the share capital and
includes stock )
Stock means total capital aggregate of fully paid up shares. Stock
is a mere collection of the shares of a member of a company in a lump
sum.
A share is defined as the smallest division of the share capital of the
company which represents the proportion of ownership of the
shareholders in the company.
A share (unit of ownership) is the interest of a shareholder in the
company.
(iii) Share Certificate : Meaning
A certificate issued under the common seal of the company,
specifying the number of shares held by the person shall be
prima facie evidence of title of the person to such shares.
Types of Share Capital
Types of Share Capital:
1. Authorised or Nominal Capital
-nominal value of shares
- maximum capital a company can have during its lifetime
- mentioned in MoA
2. Issued Capital and Unissued Capital
- nominal value of shares issued to the public
- can never exceed authorized capital
3. Subscribed Capital and Unsubscribed
4. Called-up Capital
- part of Issued Capital
5 . Paid-Up Capital

6.Reserved Capital
- called only in the event of winding up (done by special resolution)
Types of Share
The share capital of a company limited by shares is of 2
kinds:
(a) Equity share capital ( w.r.t company limited by shares, means
all share capital which is not preference share capital)
- with voting rights
- with differential rights as to dividend, voting or otherwise

Meaning:
Shares that carry no preferential or special rights in respect of
annual dividends (but paid out of profits after preference
shareholders)and in the repayment of capital at the time of
liquidation of the company are called equity shares.
Also called common stock or ordinary shares.
 contd........ Types of Share Capital:
(b) Preference share capital
Company limited by shares, means that part of issued share capital
which carries or would carry a preferential right in terms of
- payment of dividend , either fixed or amount @ a fixed rate
- repayment of capital- in the case of winding up of company,
the amount paid on preference shares must be paid back
before anything to the equity shareholders
Kinds : Preference Shares

1. Cumulative Preference Shares-

– Preference shares are always presumed to be Cumulative preference shares.
They become non cumulative if there is a clear provision stating that they are
“non- cumulative”
2. Non- Cumulative Preference Shares
3. Participating Preference Shares
– The preference shares are always presumed to be non participating.
– They become participating only if there is a clear provision in MOA or terms of
issue
4. Non-participating Preference Shares
5. Convertible preference Shares
6. Non-convertible Preference shares
7. Redeemable preference shares
Alteration of Capital (Page 189 of text book)

Power to alter capital :

A limited company having a share capital may, if so authorised by its articles,

alter its share capital as follows by passing an ordinary resolution:
(a) Increase its authorised share capital by issuing new shares
(b) Consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares
Provided that no consolidation and division which results in changes in the
voting percentage of shareholders shall take effect unless it is approved by the
Tribunal on an application made in the prescribed manner
(new provision not in Companies act 1956)
( c )convert all or any of its fully paid-up shares into
stock, and reconvert that stock into fully paid-up shares
of any denomination;
(d) sub-divide its existing shares or any of them into
shares of smaller amount than is fixed by the
memorandum;
(e) cancel any shares which, at the date of the passing of
the resolution, have not been taken or agreed to be
taken by any person.
 Procedure of alteration

• Passing of ordinary Resolution

• Such alteration does not require any
confirmation of NCLT
• Notice of alteration to be given to the
Registrar within 30 days from doing so
NOTE :1. the cancellation of shares shall
not be deemed to be reduction of share
capital
 Reduction of Capital
( Page 192-193 text book)

• Reduction of Capital (with the consent of the

Tribunal): (Sec 66) from mca website

1. Extinguish or reduce the liability on any of its shares

in respect of the share capital not paid-up
e.g no requirement of uncalled capital
 Reduction of Capital
( Page 192-193 text book)

• Reduction of Capital (with the consent of the

Tribunal): (Sec 66) from mca website

2.Cancel any paid-up share capital which is lost or is

unrepresented by available assets
e.g share of Rs.100 converted to Rs.80fully paid up
(due to heavy losses)
 Reduction of Capital
( Page 192-193 text book)

• Reduction of Capital (with the consent of the

Tribunal): (Sec 66) from mca website

3. Pay off any paid-up share capital which is in excess of

the wants of the company
e.g Out of Rs.10 share, Rs.4 each share is returned
and Rs.6 would be fully paid up or it will remain
same.
Procedure For reduction of share capital

1. Alteration of Articles ( if no provision is

there)
2. Procedure of reduction
• By passing special Resolution
• By obtaining confirmation from tribunal
3. Confirmation from tribunal
• Notice of application- To central Govt, Registrar,
creditors of company , SEBI
• Consideration of objections
• Order of confirmation
Procedure For reduction of share capital

4. Publication of tribunal Order

5. Filing requirements by company.
– Filing of special resolution
– Filing of special resolution
6. Other important provisions
Share Warrant :
A share warrant is a bearer document of title to shares and can be
issued only by public limited companies and that to against fully paid
up shares only.
- negotiable
- entitled to receive dividend as decided by the company.
Calls on shares:
A call is demand by a company on its shareholders to pay the
whole or part of the balance remaining unpaid on each share
(made anytime during the lifetime of the company or winding up)

- In accordance with companies act

– Board resolution to be passed
– It must be in good faith
– It must be made on uniform basis
– Statutory liability of shareholder to pay the full amount of his shares

-
Surrender of Shares ( means shareholder
voluntarily gives up his shares in favour of
the company)
Lien on shares:
- A company has right to retain all shares (not being fully paid up)
for amounts payable on the shares or any amount due from the
shareholders until the claim attaching to it is settled.
- should be mentioned in the articles and not inherent
- it extends to all dividends
- continues even after the death of shareholders
Forfeiture on shares:
If a shareholder having been called upon to pay any call on his shares,
fails to pay the call, the company can:
(i) bring a legal action for the amount
(ii) forfeit his shares , if company has clear powers to that effect in
AOA
Notice must be served on the defaulting shareholder and power must be
exercised in good faith i.e for the benefit of the company.
 Other Terms
• Right shares are the shares that are issued by a company for its
existing shareholders. The existing shareholders have their right
to subscribe to these shares unless some special rights reserve
them for some other persons.
• Bonus shares are additional shares given to the current
shareholders without any additional cost, based upon the number
of shares that a shareholder owns. These are company's
accumulated earnings which are not given out in the form of
dividends, but are converted into free shares.
 Difference
BASIS FOR COMPARISON SHARE STOCK

The capital of a company, is

The conversion of the fully paid
divided into small units, which
Meaning up shares of a member into a
are commonly known as
single fund is known as stock.
shares.

Is it possible for a company to make

Yes No
original issue?

Shares can be partly or fully

Paid up value Stock can only be fully paid up.
paid up.
A share have a definite
A stock does not have such
Definite number number known as distinctive
number.
number.
Fractional transfer Not possible. Possible
Nominal value Yes No
Denomination Equal amounts Unequal amounts