INTRODUCTION TO

SHARES
(COMPANY LAW)
Presented by-
Ashish Goyal (85)
BCOM 3B
What is a share?
◈ The capital of a company is divided into a
number of indivisible units of a fixed
amount. These are called Shares.

◈ “A Share is a share in the share capital of a

company and includes stock.”
-u/s 2(84) Companies act 2013
Nature of shares
◈ A share is not a sum of money but is the
interest of a shareholder in the company
measured by a sum of money for the purpose
of 1. Liability
2. interest
3. consists mutual covenants.
◈ In India, a share is considered as a good.
Section 2(7) of SOGA1930 specifies shares
as goods.
 Contd.
◈ A share is a chose in action. The existence of
a person is necessary for entitlement of
rights.

◈ Share is not a negotiable instrument.

◈ Proprietary relationship between a

shareholder and company
 Contd.
◈ Three phases of shares
1. When share is unexploited by the company.
2. When share is exploited by the company by
finding a shareholder.
3. When converted into stock.
 Share vs. Share certificate
◈ Section 44 of the companies act describes
share as a movable property.

◈ Sec. 46 describes ‘share certificate’ as an

evidence under the common seal of the
company, specifying any share held by a
member.

◈ A share certificate is a prima facie evidence.

 Share vs. Stock
◈ A share represents the unit in which
companies capital is divided.

◈ Whereas stock represents aggregate of fully

paid up shares of a member into one fund of
equal value.

◈ The stock is represented in terms of money

and not as many as shares.
 Difference b/w Shares and Stock.
SHARES STOCK
◈ Originally shares can ◈ Company cannot
only be issued. make original issue of
stock.
◈ They may be fully or ◈ They can only be fully
partly paid up. paid up.
◈ Cannot be transferred ◈ Can be transferred in
in fractions. fractions.
◈ All shares of a class
are of equal ◈ May be in different
denomination. denominations.
 Kinds of shares.
1. EQUITY SHARES
a. With equal voting rights or,
b. With differential rights subject to conditions
as may be prescribed.

2. PREFERENCE SHARES
 Preference shares.
Preference shares means those shares of the
company which fulfills both the requirements
of
1. During the life of the company, the holder
must be assured preferential dividend.

2. On the winding up of company, it must

carry a preferential right to be paid.
 Types of preference shares
1. Participating & non participating shares
Participating shares are those shares which are
entitled to preferential dividends and carry a
right to participate in surplus profits along with
equity shareholders after dividend at a certain
rate has been paid to equity shareholders.
They carry same right at the time of winding up
of company.
2. Cumulative and non cumulative shares
Cumulative shareholders have the right to claim
fixed dividend of the past and the current years
out of the future profits.
The fixed dividend keeps on accumulating until
it is fully paid.

Preference shares are cumulative unless

expressly specified by the company.
3. Redeemable and irredeemable pref. shares
As per sec 55.
◈ No company limited by shares can issue any
preference share which are irredeemable.

◈ A company limited by shares, if authorized by

articles can issue preference shares which can
be redeemed within a period not exceeding 20
years from date of issue.
 Equity Shares.
◈ The shares which do not enjoy any
preferential right in terms of dividend
payment and repayment of capital.

◈ The dividend on equity shares is not fixed.

◈ The rate of dividend of decided by Board of

Directors and declared to shareholders in
annual general meeting.
◈ Every member of company limited by shares
and holding equity share capital therein shall
have:
1. A right to vote on every resolution.
2. His voting rights shall be in proportion to his
share in paid up equity share capital of the
company.
 Difference b/w equity and
preference shares
Equity Shares Preference Shares
◈ Rate of dividend not ◈ Fixed rate of
fixed. dividend.
◈ Paid after preference ◈ Paid before equity
shares. shares.
◈ No preference in ◈ Preference in
repayment of repayment of
capital. capital.
◈ In case of losses, no ◈ Cumulative pref.
dividend is paid. shares are paid
dividend in case of
losses.
◈ Not redeemable. ◈ Redeemable pref.
shares are redeemed
after some time.
◈ Can vote only in cases
◈ Can vote in every case related to them.
affecting the company.
◈ Right shares cannot be
◈ Right shares can be issued.
issued.
 Non voting shares.
◈ Do not carry any voting rights.

◈ They may carry additional dividend in lieu

of voting rights.

◈ Sec. 43 allows the issue of such shares.

 Par Value of Shares.
◈ SEBI regulations allow the issue of shares at
any par value subject only to the value not
being less than or equal to Re. 1.

◈ Companies wishing to dematerialize the

shares can change the par value only if their
MOA allows.

◈ Only one denomination of share can be

issued.