UNIT-III

CORPORATE FINANCING
 CORPORATE FINANCING
Finance is the key bloodstream of any form of business. It is
the most important facet on which the existence and growth of
any business depends. Corporate Financing is the functional
process of business which helps to meet its goals and objectives with
responsibilities for acquiring funds for the company, managing the
funds within the company and planning for the expenditure of funds
on various business aspects.
A business cannot function unless adequate funds are made available to it. The
initial capital contributed by the entrepreneur is not always sufficient to take
care of all financial requirements of the business. A business person, therefore,
has to look for different other sources from where the need for funds can be
met.
 SHARE CAPITAL
Capital refers to the amount invested in the company to carry
on its activities. Share Capital is used to mean the capital
raised by the company through issuing shares to the public.
In simple terms, it can be said that that share capital is the
money invested in a company by the shareholders. It is a long
term source of finance through which shareholders gain a
share of ownership in the company.
TYPES OF SHARE CAPITAL
Authorized Share Issued Share Capital-Sec
Capital –Sec 2(8) 2(50)
Subscribed Capital-Sec Called-Up Capital-Sec
2(86) 2(15)
Paid-Up Capital-Sec
2(64)
1. Authorized Share Capital –Sec 2(8)
Authorized Share Capital is the total capital that a company accepts from
its investors by issuing shares which are stipulated in the official document
of the company. The Memorandum of Association of every company
denotes the amount of authorized share capital. It is also known as
Registered Capital or Nominal Capital because with this capital a
company is registered.
2. Issued Share Capital-Sec 2(50)
Issued Share Capital is the part of authorized share capital issued for
subscription to the public. This Act of issuing share is called Issuance,
allocation or allotment. In simple terms, it can be said that that issued share
capital is the subset of the authorized share capital. After the allotment of
shares, a subscriber becomes the shareholder.
3. Subscribed Capital-Sec 2(86)
Subscribed capital is the part of issued capital which has been taken off by
the public. It is not mandatory that the issued capital is fully subscribed to by
the public. It is that part of the issued Capital for which the application has
been received by the company.
4. Called-Up Capital-Sec 2(15)
Called up Capital is the part of the subscribed capital, which includes the
amount paid by the shareholder. The company does not receive the entire
amount of capital at once. It calls upon the part of subscribed capital in two
or three instalments. The remaining part of the subscribed capital is
called Uncalled Capital.

5. Paid-Up Capital-Sec 2(64)

The part of called-up capital which is paid by the shareholder is termed as
paid-up capital. It is not mandatory that the amount called by the company
is paid by the shareholder. The shareholder may pay half the amount of the
called up Capital, which is called as Reserved Capital. As the name
reserve means to keep some amount in the treasury of the company. This is
quite useful in case of winding- up of the company.

EXAMPLE:
FIVE ROSES LTD
Authorised Capital is Rs.100 Cr.
Issued Capital-The company issued shares worth Rs.75 Cr out of the
total Authorised Capital of Rs.100 Cr.
Subscribed Capital- Thecompany issued shares worth Rs.75 Cr out
which only Rs.70 Cr worth shares was subscribed.
Paid-up capital-Rs.65 Cr. out of the total subscription of Rs.70 Crore.
 LEGAL PROVISIONS AS TO SHARE
CAPITAL AND DEBENTURES
1.THE COMPANIES ACT 2013
CHAPTER IV-SEC 43-72
SHARE CAPITAL AND
DEBENTURES SHARE CAPITAL-
SEC 43-70 DEBENTURES-SEC 71&72
2. THE COMPANIES (SHARES
CAPITAL AND DEBENTURES)
RULES 2014
RULE 1-19
 SHARES
MEANING
A share is referred to as a unit of ownership which represents an equal
proportion of a company’s capital. A share entitles the shareholders to an
equal claim on profit and losses of the company. There are majorly two
kinds of shares i.e. equity shares and preference shares. A person who
owns shares in a company is called Shareholder.
DEFINITION
Section 2(84) Share means “a share in the share capital of a company
and
includes stock.”
BORELAND TRUSTEE VS STEEL BROS & CO LTD [1901] 1 CH
279
MOVABLE PROPERTY
Shares in the company shall be movable property transferable in the
manner provided by the Articles of the company. Shares are treated as
goods under the Sec 2 (7) of the Sale of Goods Act 1930 and they can be
transferred to other persons.
VISWANATHAN VS EAST INDIA DISTILLERS (AIR
1957 MAD.HC.341)
TYPES OF SHARES
As per Section 43 of the Companies Act 2013, the share capital of the
company is of two types:
(a)Equity share capital
(i) with a voting right or
(ii)with differential rights as to dividend, voting or otherwise.
(b)Preference share capital

I EQUITY SHARES:
An equity share, also known as ordinary share is a part ownership where
each member is a fractional owner and initiates the maximum entrepreneurial
liability related with a trading concern. The equity share holders have the
right to vote, share the profits and claim the assets of the company.
The value of equity shares is expressed in the various term like par
value or face value, book value, issue price, market price, intrinsic
value and so on.
FEATURES OF EQUITY SHARES
• Equity shareholders have the right to vote on various matters of the
company.
• The management of the company is elected by equity shareholders.
• The equity share capital is held permanently by the company and returned
only upon winding up.
• Equity shares give the right to the holders to claim dividend on the surplus
profits of the company. The rate of dividend on the equity capital is
determined by the management of the company.
• Equity shares are transferable in nature. They can be transferred from one
person to another with or without consideration.
ISSUE OF EQUITY SHARES
❖ With voting rights
❖ With differential rights to voting, dividends, etc., in accordance with the rules.
EQUITY SHARES WITH DIFFERENTIAL VOTING RIGHTS (DVR)
OR NON-VOTING SHARES
There are 2 types of DVRs
1. Shares that have Superior / Higher voting rights
Multiple votes on one share
For Example : Voting right 10:1 means 10 votes are allowed for each share.
However, It is not allowed in India.
2. Shares that have Inferior / Lower voting rights
 RULE 4 OF COMPANIES (SHARE CAPITAL AND DEBENTURE)
RULES 2014 and Sec 43(a)(ii)
The differential rights are in respect of voting power and dividend. In
general parlance equity shares with less voting rights carry higher rate
of dividend but whereas the equity shares with higher voting shares
carries with lesser rate of dividend. Equity shares with higher voting
rights are usually given to promoters, key managerial persons,
managing directors etc.
In case the company issues shares with voting rights that means,
generally one share carry one voting power. But in the instance of
differential voting rights, one share carries more than one voting right or
carries with lesser than one voting rights.
In 2008, Tata Motors issued DVR shares for raising the funds for
acquisition of Jaguar Land Rover. It was the first company in India to
issue DVR shares and amongst the very few in Asia.
Four Indian companies, Tata Motors, Pantaloons Retail India,
Gujarat
NRE Coke and Jain Irrigation Systems have issued DVRs so far.
II PREFERENCE SHARES
As per Section 43 of the Companies Act,2013 Preference Share Capital, with
reference to any company limited by shares, means that part of the issued share
capital of the company which carries or would carry a preferential right with
respect to:
(a)payment of dividend, either as a fixed amount or an amount calculated at a fixed
rate;
(b) repayment, in the case of a winding up or repayment of capital
The issuance of preference shares can be a very advantageous tool where the
Company doesn’t intend to loose ownership or control but at the time is in need of
funds as well. Preference shareholders do not enjoy normal voting rights like equity
shareholders
TYPES OF PREFERENCE SHARES
❖ Cumulative Preference Shares
❖ Non-Cumulative Preference Shares
❖ Redeemable Preference Shares
❖ Irredeemable Preference Shares
❖ Participating Preference Shares
❖ Non-Participating Preference Shares
❖ Convertible Preference Shares
❖ Non-Convertible Preference Shares
Cumulative Preference Shares
Holders of cumulative preference shares are entitled to receive the
divided for a year in which dividends could not be paid due to losses
or inadequate profit in the subsequent year(s) whenever there are
sufficient profits.
Non-Cumulative Preference Shares
Holders of non-cumulative preference shares are NOT entitled to
receive the dividend for a year in which dividends could not be paid
in the subsequent year(s). Therefore, for non-cumulative preference
shares, the right to dividend for a year cannot be carried over in
subsequent years.
Participating Preference Shares
Participating preference shares are eligible to receive surplus profit or
dividends in the company, in addition to being entitled for fixed
dividend.
Non-participating Preference Shares
Non-participating preference shares are those shares that are not
entitled to participate in surplus profits of the company.
Non-participating preference shares are only entitled to fixed
dividend payments.
Redeemable Preference Shares
Redeemable preference shares are those shares that would be
redeemed by the company within a period of 20 years from the date
of issue.
Irredeemable Preference Shares
Irredeemable preference shares are those preference shares that
would NOT be redeemed by a company. Companies in India are not
allowed to issue irredeemable preference shares.
Convertible Preference Shares
Convertible preference shares can be converted into equity shares of
the company as per the terms and conditions of their issue.
Non-convertible Preference Shares
Non-convertible preference shares are not convertible into equity
shares of the company but still have preferential rights to payment
of capital in the event of winding up of the company.
 APPLICATION AND ALLOTMENT OF
SECURITIES
DEFINITION: The term ‘Securities’ under Section 2(81) of the Companies Act,
2013 has been defined to mean ‘securities’ as defined in Section 2(h) of the
Securities Contracts (Regulation) Act, 1956 Under Section 2(h) of
SCRA, the term ‘securities’ include the following:
Shares, scrips, stocks, bonds, debentures, debenture stocks etc. in or of any
incorporated company or another body corporate.

ALLOTMENT: When a public limited company issues a prospectus inviting the

public to subscribe to its securities and people for them, this application is an offer to
buy the securities and when such applications are accepted by the company, it is
termed as ‘Allotment’

Allotment is done by resolution of the Board of Directors, as per the Articles of the
company. Shares come into existence on allotment. Thus allotment is the fresh issue
of shares. The re-issue of forfeited hares cannot be called as allotment; it is simply a
sale of shares.
LEGAL PROVISIONS:
CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES
PART I — Public offer Sec 23-41
PART II — Private Placement-Sec 42
The Companies (Prospectus and Allotment of Securities) Rules, 2014.
GENERAL PRINCIPLES REGARDING ALLOTMENT
MODE OF ISSUE OF SECURITIES-SECTION 23:
A public company may allot shares in the following ways:
❖ to the public through prospectus (public offer)
❖ through private placement
❖ through a rights issue or a bonus issue
A private company may allot shares in the following ways:
❖ by way of rights issue or bonus issue
❖ through Private placement
PUBLIC OFFER:
A ‘public offer’ includes initial public offer or further public offer of
securities to the public by a company, or an offer for sale of
securities to the public by an existing shareholder, through issue of a
prospectus.
PRIVATE PLACEMENT
The provisions of Section 42 of the Companies Act, 2013, as
amended by Companies (Amendment) Act, 2017 read with the Rule
14 of the Companies (Prospectus and Allotment of Securities) Rules,
2014 deal with the issue of securities by way of Private Placement.
 PRIVATE PLACEMENT: Refers to any offer of securities or invitation to subscribe
securities to a select group of persons by a company (other than by way of public
offer) through issue of a private placement offer letter in Form PAS 4. A Private
Placement shall be made only to Identified Persons not exceeding fifty or such
higher number as may be prescribed 200 persons in aggregate excluding the
Qualified Institutional Buyers (QIBs) and employees of the company being offered
securities under a scheme of ESOP, in a financial year subject to the prescribed
conditions.
RIGHTS ISSUE
A letter of offer in the form of notice is issued to the existing equity shareholders, in
the proportion of their existing holding in the Company. The Shareholders of the
Company can either accept the offer, renounce the offer in favour of any other
person or reject the offer. The proportion of voting rights is not affected under the
Right Issue, if accepted by all the shareholders. Accordingly, subscribed capital of
the company is increased in rights issue.
BONUS ISSUE
An issue of bonus shares is referred to as a bonus share issue or bonus issue. A
bonus issue is usually based upon the number of shares that shareholders already
own.
The company shall issue fully paid Bonus Shares out of any one of the following
source:
❖ Free reserves of the company
❖ The securities premium account
❖ The capital redemption reserve account
Bonus issue is to be authorized by the Articles of Association of the company
making the allotment of bonus shares and it is recommended by the board and then
approved by the shareholders in the general meeting of the company.
 The Companies Act, 2013 lays down the following conditions
to be fulfilled before a Company proceeds to allot
securities:

(1) Application Money: The company must have received in cash the
amount payable on application, which must not be less than 5% of the
nominal value of the securities or such other amount or percent as may be
specified by Securities Exchange Board of India; and deposited the amount
received in a separate account famously called as Escrow Account in a
Scheduled Bank before making any allotment.
Such money can be utilized only for the following two purposes:
For adjustment against allotment of securities, where listing is permitted; or
For repayment of money, where the company is for any other reason unable to
allot securities.
(2) Minimum Subscription: The minimum subscription as provided in the
prospectus must have been received within 30 days from the date of issue of
the prospectus or such other period as may be specified by Securities
Exchange Board of India. In case of non-compliance, the issue will fail and
the entire amount is to be repaid, without interest, within 15 days from the
date of closure of issue. Beyond 15 days, the directors of the company, who
are officers in default, become liable to repay the money with an interest of
15% p.a.
 (3)Listing Permission: Every company making public offer shall, before
making such offer, make an application to one or more recognized stock
exchange and obtain permission for the securities to be dealt with in such stock
exchange or exchanges. Where a prospectus states that such an application has
been made, the name of the stock exchange has to be mentioned where the
securities are to be dealt with. Any allotment without permission of the stock
exchange shall be void
(4)Waiver of condition not permitted: Any condition purporting to require or
bind any applicant for securities to waive compliance with any of the
requirements of this section shall be void.
If a default is made, the company shall be punishable with a fine which shall
not be less than Rs. 5,00,000 but which may extend to Rs. 50,00,000; and
Every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to one year; or fine which
shall not be less than Rs. 50,000 but which may extend to Rs. 3,00,000, or
with both.

RETURN OF ALLOTMENT:
Section 39 states that within 30 days of the allotment of securities, a company
must send to the Registrar, a report in e-Form No. PAS.3, termed as the return
of allotment. It must contain the following particulars/documents:-
❖ A list of allottees specifying their names, address, occupation and
number of securities allotted to each of the allottees.
❖ Contracts in writing, under which securities have been issued for any
consideration other than cash, must be produced for examination of the
Registrar. If the contract is not in writing, its particulars are to be
provided in e-Form No. PAS.3. A report of a registered valuer in
respect of the valuation of the consideration shall also be attached.
❖ Where bonus securities have been issued, a copy of the resolution of the
shareholders, authorizing the issue of such securities should also be
attached with the return.
PRIVATE PLACEMENT-SEC 42
As per the Companies Act, 2013 private placement means any offer or
invitation to subscribe or issue of securities to a selected group of
persons by a company (other than by way of public offer) through
private placement offer-cum-application form, which satisfies the
conditions specified in section 42 of the Companies Act, 2013.
1.Statutory Provisions for Private Placement of Securities
Section 42 of the Companies Act, 2013, as amended by
Companies (Amendment) Act, 2017 read with the Rule 14 of
the Companies (Prospectus and Allotment of Securities)
Rules, 2014
2.Number of Persons to whom the offer shall be made
3.Private Placement Offer-cum-Application-Form PAS-
4
4. Authorization by prior Shareholder’s Approval
5. Subscription of Securities
6. Mode of payment of Subscription Money
7. Separate Bank Account with Scheduled Bank
8. Time Limit for Allotment of Securities
9. Offer should not be advertised
10. Filing of Return- Form PAS-3
11. Procedure for Private Placement
SHARE CERTIFICATE-SECTION 46
A share Certificate is a document issued by company evidencing that the
person named in the certificate is owner of number shares of Company as
specified in the Certificate. A Board resolution should be passed in the Board
Meeting for issue of Certificate. A certificate, issued under the common seal
of the company or signed by two directors or by a director and the Company
Secretary, wherever the company has appointed a Company Secretary,
specifying the shares held by any person, shall be prima facie evidence of the
title of the person to such shares.
SHARE CERTIFICATE SHALL SPECIFY THE FOLLOWING
❖ Share Certificate shall issue in form SH-I or near as possible.
❖ Certificate should specifying Name of Member.
❖ Every Certificate shall be under the Common Seal of the Company.
❖ It shall specify the Number of Shares it relates.
❖ It shall specify the amount paid on those Shares.
❖ It shall specify the Distinctive No. of Shares.
❖ It shall specify the Number of Share Certificate.
❖ It shall specify the Folio No. of Member.
❖ Name of Company, CIN of Company and Registered Office Address of the
Company.
TIME PERIOD FOR ISSUE OF SHARE CERTIFICATES: SEC 56
❖ In case of Incorporation: With in a period of two months from the date of Incorporation
to the subscriber of Memorandum.
❖ In case of Allotment: With in a period of two months from the date of allotment of shares.
❖ In case of Transfer: With in a period of one month from the date of receipt of instrument
of Transfer by the Company
Cardiff Chemicals Vs. Fortune Bio-Tech Ltd (2004) 55
SCL 645 + 126 Comp Cas 275 (CLB),
It was held that burden to prove the share certificates have been delivered to shareholder is on the
company.
DUPLICATE SHARE CERTIFICATE
REGISTER OF MEMBERS
Details of share certificates issued will be maintained in Register of members maintained under
Section 88 of the Companies Act, 2013 along with the name to whom it is issued and date of
issue as per Rule 5(4) of Companies(Share Capital and Debentures) Rules, 2014.
SHARE WARRANT
A Share Warrant is a document issued by the company under its common seal, stating that its
bearer is entitled to the shares or stock specified therein. Share warrants are negotiable
instruments. They are transferable by mere delivery without registration of transfer. Warrants
are essentially a right or interest in securities; it shall be treated as a “securities” under
clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956.
CALLS ON SHARES- SECTION 49
Calls on shares means a demand, made by the company in pursuance of a
Board resolution and in accordance with the articles of the company, upon
its shareholders to pay the whole or part of the balance still due on each
class of shares allotted or held by them, made at any time during the life of
the company. The unpaid amount on each share is called by the company in
one or two instalments. These instalments are known as calls.
MANNER OF MAKING A CALL
Generally Articles of association of companies provide for the manner in
which calls should be made. They follow the following outline set out in
Regulations 13 to 18 of Table F of Schedule I appended to the
Companies Act, 2013
CALLS IN ARREARS:
It is the situation when the shareholder fails to pay the called money in the
allocated time by the company. If a shareholder fails to pay the due amount
of share allotment or calls, the unpaid amount of share is termed as 'calls
in arrears'.
CALLS IN ADVANCE:
A company may, if so authorised by the articles, accept from any member
the whole or a part of the amount remaining unpaid of any shares by him
although no part of that amount has been called up Section 50, the
Companies Act, 2013. The amount so received or accepted is termed as
payment in advance of calls.
 FORFEITURE OF SHARES
It is a procedure where the company forfeits the shares of a member or
shareholder who fails to pay the call on shares or instalments of the issue price
of his shares within a certain period of time after they fall due. In other terms,
when the shareholder fails to pay the full amount of share which he agreed to
pay in instalments the company can cancel his shares.
PROCEDURE FOR FORFEITURE OF SHARES
Shares of members cannot be forfeited unless the articles of the company confer
such power on the directors. The forfeiture of a share can take place only for the
non-payment of the call on shares by the members and in accordance with
articles of the company. Companies generally have their own rules and regulations
regarding the forfeiture of shares and in case if those provisions are not present then
the Regulations 28-34 of Table F of Schedule 1 of Companies Act, 2013 will
apply.
REGULATIONS 28-34 OF TABLE F OF SCHEDULE 1 OF
COMPANIES ACT, 2013
1. Forfeiture of shares must be in accordance with the provisions stated in the articles of the
company to be treated as valid forfeiture.- Hope Vs. International Finance Society (1876) 4
Ch. D. 598
2. A proper notice under the authority of board must be served on the defaulting
shareholder. “A proper notice is a condition precedent to the forfeiture of shares and even the
slightest defect in the notice will invalidate the forfeiture”. Public Passenger Services Ltd. Vs.
If the defaulting shareholder does not pay the amount within the
stipulated period mentioned in the notice properly served to him,
the directors of the company passes a resolution forfeiting the shares
under regulation 30 of Table F. In the absence of such resolution the
forfeiture shall not be valid unless the notice of forfeiture
incorporates the resolution of forfeiture as well.
A person whose shares have been forfeited ceases to be a member in
respect of forfeited shares. This is provided under regulation 32(1)
of Table F of Schedule I of Companies Act, 2013.
SURRENDER OF SHARES
Surrender of shares refers to the return of shares by the
shareholder to the company for cancellation. Holder in this case
voluntarily abandons all his shares in favour of the company. A mere
refusal to take up newly issued shares, to which a shareholder is
entitled to, is not a surrender of shares. The power to accept surrender
of shares cannot be exercised by a company unless expressly stated in
the Articles of Association.
ISSUE OF SHARES AT PREMIUM
The issue of shares at premium refers to the issue of shares at a price higher
than the face value (Nominal value/Par value) of the share. In other terms, the
premium is the amount over and above the face value of a share. Generally, the
companies that are financially strong, well- managed and have a good
reputation in the market issue their shares at a premium.
For example, if a company issues a share of nominal or face value of ₹10 at
₹11, it issues it at 10% premium.
SECURITIES PREMIUM A/C
The company is required to credit the amount of Premium in a
separate account i.e. Securities Premium A/c, as it is not a part of the Share
Capital. It is really a gain for the company. As per the Companies Act, 2013 the
company depicts the credit balance of the Securities Premium A/c under the
heading ‘Reserves and Surplus’ on the liabilities side of the Balance Sheet.
Section 52 of the Companies Act, 2013 states how a company can utilise the
Securities Premium. The following are the provisions regarding this
❖ The company can utilise the amount towards the issue of un-issued shares to
the shareholders or members of the company as fully paid bonus shares.
❖ The company can use this amount to write off the preliminary expenses.
❖ The company can also use it to pay the premium on the redemption of
debentures or redeemable preference shares.
❖ The company can also use this amount to write off the expenses incurred,
ISSUE OF SHARES AT A DISCOUNT
Section 53 prohibits a company to issue shares at
discount except in the case of issue of sweat equity
shares. Any share issued by a company at a discount
shall be void.
However, a company may issue shares at a discount to
its creditors when its debt is converted into shares in
pursuance of any statutory resolution plan or debt
restructuring scheme in accordance with any
guidelines or directions or regulations issued by the
Reserve Bank of India under the Reserve Bank of
India Act, 1934 or the Banking (Regulation) Act,
1949.
Where any company does not comply with the
provisions of this section, such company and every
officer who is in default shall be liable to a penalty
which may extend to an amount equal to the amount
raised through the issue of shares at a discount or five
SWEAT EQUITY SHARES
The concept of 'sweat equity shares' is defined in Section 2(88) of the
Companies Act, 2013. ‘Sweat equity shares’ are such equity shares, which
are issued by a Company to its directors or employees at a discount or for
consideration, other than cash, for providing their know-how or making
available rights in the nature of intellectual property rights or value
additions, by whatever name called.
The sweat equity shares shall be issued to the following category of
employees which includes:-
❖ Permanent employee of the Company whether working in India or outside
India;
❖ Director of the Company, whether a whole-time Director or not;
❖ Employee or Director as mentioned above of a Subsidiary in India or outside
India, or of a Holding Company of the Company.
For issue of sweat equity shares, Listed Company shall comply with the
provisions of Securities and Exchange Board of India (SEBI) Regulations
on Sweat Equity and the Company other than listed company shall
comply with the provisions of Section 54 of the Companies Act, 2013 and
Rule 8 of The Companies (Share Capital and Debentures) Rules, 2014.
TRANSFER AND TRANSMISSION OF
SHARES-SEC 56
TRANSFER OF SHARES
Transfer of shares refers to the voluntary act of members of the Company
whereby the ownership in shares is transferred from one person to another
for a consideration by executing a valid deed of transfer by the transferor in
favour of transferee.
Western Maharashtra Development Corporation Ltd. Vs. Bajaj Auto
Ltd 2010 154 com cases 593 Bom
Section 44 of the Act states that the shares, debentures or other interest of the
member of a company are moveable property and hence are transferable in
the manner as provided in the company’s articles of association.
Private company is a company, which restricts the right to transfer its shares.
In the case of a public company, the Act provides that the shares or
debentures and any interest of the company are freely transferable
Statutory provisions related to transfer of share are as follows:
❖ Section 56 of Companies Act, 2013
❖ Rule 11 of Companies (Share Capital & Debentures) Rules 2014
❖ Provisions given in model articles of association given in Table ‘F’ of
Schedule-I
Share Transfer Procedure Initiation
Private limited partnership ownership allocation process
The following steps must be followed to initiate the
share transfer procedure:
Step 1: AOA revision: the Private Limited Company’s
articles of association must be checked and limitations
discussed.
Step 2: The shareholder will give the Company’s
Manager a written notice of intent to move the company’s
share.
Step 3: determine the price according to the Articles of
Association, where the company’s shares would be sold
first to its current shareholders. (This price is usually
decided by the Company Directors or by the Company
Auditor.)
Step 4: The company will then inform the other shareholders of
the share availability and the final date of purchase of the stock.
* If any of the current shareholders are coming forward to purchase
shares, they must be allocated these shares. When no existing
shareholder is interested in, or excess shares are available, the
same could be transferred to the external partner.
Step 5: Get the SH-4 Share transfer act duly executed by both the
transferor and transferee.
Step 6: In compliance with the Indian Stamp Act and the Stamp
Duty Notice in effect in the State in question, the transfer
certificate will bear stamps. The official share transfer rate is 25
Paise, for every 100 rupees of the share value or part thereof.
Should not forget to cancel the stamps that were issued at or before
the transfer deed was signed.
Step 7: A person who gives his or her signature, name, and address
must bear witness to the signatures of the transferor and the
transferor of a share transfer deed.
Step 8: Change the corresponding share certificate or allocation letter to the
share transfer deed and forward it to the company. A share transfer deed must be
deposited with the company, in or on behalf of the customer, within sixty ( 60 )
days of the date of execution, and in or on behalf of the customer.
Step 9: The Board shall consider the same after receiving the share transfer
deed. If the share transfer documentation is in order, the Board shall register the
transfer by resolution.
How to Transfer Shares of a Private Limited Company
The following steps must be taken to carry out the share transfer:
Step 1: Get the share transfer deed as required.
Step 2: execute the transfer of shares duly signed by the Transferor and
Transferee.
Step 3: Stamp the share transfer deed in compliance with the Indian Stamp Act
and the State Stamp Duty Notice.
Step 4: Have a witness register with his / her signature, name, and address the
transfer deed.
Step 5: Attach the transfer document to the share certificate or allocation letter
and send it to the company.
Step 6: the company shall process the paperwork, and the transferor shall grant
if accepted, a new share certificate.
TRANSMISSION OF SHARES
MEANING
Transmission of shares refers to a process by operation of law where under the shares
are registered in a Company in the name of deceased person or an insolvent person are
registered in the name of his legal heirs by the Company on proof of death or
insolvency as the case may be. It takes place when registered member dies or is
adjudicated insolvent or lunatic by competent court.
ARTICLES OF ASSOCIATION:
Articles of the Company usually provide the provisions of Transmission of shares. In
absence of such provisions, Company will follow Regulations 23 to 27 of Table F of
Schedule I to govern the provision of Transmission of shares
DOCUMENTS REQUIRED FOR TRANSMISSION OF SHARES:
❖ Certified copy of death certificate
❖ Succession certificate
❖ Letters of Administration
❖ Probate
❖ Specimen signature of the successor
If a member of a company dies and he leaves after him a will or letter of
administration then the survivors shall get a copy of ‘will’ certified under the seal of a
Court of competent jurisdiction. The certified copy of the will is called a ‘probate’.
Succession certificate is not required when probate or letter of administration is
issued.
Steps to be followed for transmission of shares
Step 1: Application by Survivor
Step 2: Review and Verification of documents by the Company
Step 3: Share transfer deed not required
Step 4: Liability on shares
Step 5: No Payment of stamp duty
Step 6: Issue of share certificates after transmission Sec 56(4)

The Board of Directors also have the right to decline

registration as they would have had in case of transfer of
shares before death. But if the Company refuses transmission,
same remedies are available to legal representative as that in
case of transfer, namely appeal to the Tribunal under section
58.

1. LIFE INSURANCECORPORATION OF INDIAVS

BOKARO & RAMGUR LTD.
2. THENAPPA CHETTIAR V INDIAN OVERSEAS
BANK LIMITED
COMPARSION BETWEEN TRANFER AND
TRANSMISSION OF SHARES
ALTERATION OF SHARE CAPITAL-SECTION 61
Increase or decrease of authorized share capital of a company is famously
termed as alteration of share capital. Power of a company to alter its share
capital is defined and expounded under section 61 of the Companies Act,
2013.
According to this section a limited company having a share capital may, if so
authorized by its Articles of association, alter its share capital by passing an
ordinary resolution in general meeting. Such alteration does not require
confirmation by National Company Law Tribunal. However, the notice of
such alterations shall be given to Registrar within 30 days of such
alteration in E-form SH-7 with certified true copy of ordinary resolution
along with explanatory statement and altered copy of Memorandum of
Association.
BONUS SHARES-SECTION 63
Bonus Shares are shares given to the existing shareholders in proportion to
the number of shares held by them. Bonus shares are additional shares given
to the current shareholders. It is the further issuance of shares by a company
to its existing shareholders without any receipt of any consideration.
While Issuance of Bonus Shares increases the total number of shares issued
and owned, it will not increase the value of the Company, the ratio of number
of shares held by each shareholder remains the same.
 There was no specific provision under Companies Act,1956
dealswhich
with Issue of Bonus shares, the companies were following norms
prescribed by the Controller of Capital Issues. Once Securities
Exchange Board of India came into existence and Controller of Capital
abolished, Unlisted Private Companies and Public Limited Companies
were free to issue Bonus shares. The Companies Act, 2013 has introduced
Section 63 read with Rule 14 The Companies (Share Capital and
Debentures) Rules, 2014 to deal exclusively with issue of Bonus shares.
The source out of which Bonus Shares shall be issued
❖ Free reserves of the company
❖ The securities premium account
❖ The capital redemption reserve account
The source out of which Bonus Shares shall not be issued
❖ The company shall not issue bonus shares by capitalizing reserve created out revaluation
of Asset.
❖ The company shall not issue shares in lieu of Dividend.
The Company not eligible for issuing bonus shares
❖ It has defaulted in repayment of deposit.
❖ It has defaulted deposit interest.
❖ It has defaulted in debt securities.
❖ It has defaulted in respect of payment of statutory dues of the
employee’s viz.,
contribution to Provident Fund, Bonus and Gratuity.
❖ Any outstanding partly paid share remains unpaid.
Ensure that once the decision of board regarding bonus issue is announced, then it
REDUCTION OF SHARE CAPITAL- SECTION 66
Reduction of share capital is referred to as the reduction of issued, subscribed and
paid-up capital of the company. The requirement of reducing share capital may
arise in various situations, few are listed below:
❖ Returning of surplus to shareholders;
❖ Eliminating losses, which may be preventing the payment of dividends;
❖ May be as part of scheme of compromise or arrangements;
❖ To simplify capital structure;
Reduction of share capital is governed as per the following provisions
❖ Section 66 of the Companies Act, 2013; Reduction by way of cancellation of
shares
❖ Rule 2 to 6 of the National Company Law Tribunal (Procedure for Reduction
of Share Capital of Company) Rules, 2016
❖ Section 61 of the Companies Act, 2013; Alteration of share capital
involves reduction in authorised share capital by cancellation of shares
Conditions :
1. Article of Association of the Company should have power for reduction of share
capital.
2. No such reduction shall be made if the company is in arrears in the repayment of any
deposits accepted by it, or the interest payable.
BUY BACK SHARES-Sec 68
Buy-Back of shares refers to a situation in which a company purchases its own
shares from the existing shareholders usually at a price which is higher than the
market price of such share. It is a method of re-structuring of capital of the
company by which excess paid up share capital can be extinguished.
Buy-Back Shares are governed as per the provisions Sec 68-70 of the
Companies Act 2013 and Rule 17 of Companies (Share Capital and
Debentures) Rules, 2014
Sources of Buy-Back:- a company may purchase its shares out of:-
(a)its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities.
Benefits of Buy-Back: - There are benefits to buy-back its shares by a company, some
of them are listed below:-
• To amplify the Earnings Per Share (EPS) of the Company;
• To pay the surplus funds to the shareholders;
• To maintain the debt equity ratio;
• To service the equity of the company in more competent manner;
• To enhance the return on capital & return on net worth;
 DEBENTURES
MEANING
The word ‘debenture’ itself is a derivation of the Latin word ‘debere’ which
means to borrow or loan. Debentures are written instruments of debt that
companies issue under their common seal. It is a debt acknowledged by a
company whether constituting a charge on the assets of the company or not,
whether convertible into shares at a later stage or not. A person having the
debentures is called debenture holder whereas a person holding the shares is
called shareholder.
DEFINITION
Section 2 (30) of the Companies Act, 2013 defines the term Debentures as
“debenture includes debenture stock, bonds or any other instrument of a
company evidencing a debt, whether constituting a charge on the assets of the
company or not
Debentures of the company can be classified into various ways

SECURED DEBENTURES
ON THE BASIS OF
SECURITY UNSECURED
DEBENTURES
 REEDEMABLE
DEBENTURES
ON THE BASIS OF
REDEEMABILITY
IRREDEEMABLE
DEBENTURES

REGISTERED
ON THE BASIS OF
REGISTRATION DEBENTURES
BEARER DEBENTURES

NON-CONVERTIBLE
DEBENTURES
ON THE BASIS OF
PARTLY CONVERTIBLE
CONVERTABILIT DEBENTURES
Y

FULLY CONVERTIBLE
DEBENTURES
Provisions governing debentures under Companies Act, 2013
❖ Section 2(30) of the Companies Act, 2013 - Definition
of debentures.
❖ Section 44 -Nature of debentures.
❖ Section 71-Detailed provisions regarding debentures and
their issuance
❖ Rule 18-The Companies (Share capital and Debentures
Rule) 2014
KEY POINTS AS TO THE ISSUANCE OF DEBENTURES
❖ Debenture has to be a movable property transferrable in the manner as
provided in section 44.

❖ The company is permitted to issue debenture under section 71 of the

Act. The company can also convert these into shares at the time of
recovery if the same has been approved in the general meeting by
passing a special resolution. The debentures cannot be equated as
shares unless they are converted as claimed by the judiciary. The
expenditure incurred on such conversion is revenue expenditure.
❖ Voting rights – Companies cannot issue debenture giving voting rights as
stated in section 71(2) of the Act. Debenture holders are merely the
creditors of the company and do not hold any right in decision making of the
company.
❖ The company cannot issue a prospectus or make an offer for issuance of
debentures until the company has made a debenture trustee for the same. The
company has to appoint a debenture trustee who will make sure that the rights
and interests of debenture holders are protected.
❖ The debenture trustee can approach the tribunal if it finds that the assets are
insufficient to repay the loan amount and tribunal after appropriate hearing
may restrict the company from securing more loans that may add to its
liability.
❖ The debenture holders can approach the tribunals and seek relief if the
company defaults in paying the interest on its due date or fails to repay
the entire amount. They can redeem their amount with the assistance of the
courts.
❖ If company fails to comply with the orders of the court or tribunal, they
become liable to be penalised with imprisonment of up to 3 years or fine
which can between 2 lakhs to 5 lakhs. The liability to pay the amount
received for the debentures is a liability.
❖ The contract between debenture holders and the company is bound by specific
 DIFFERENCE BETWEEN SHARES
AND DEBENTURES
BASIS FOR
SHARES DEBENTURES
COMPARISON
Meaning The shares are the owned The debentures are the
funds of the company. borrowed funds of
the company.
Represent Shares represent the Debentures represent the
capital of the company. debt of the company.
Holder The holder of shares is The holder of debentures is
known as known as debenture
shareholder. holder.
Status of Holders Owners Creditors
Form of Return Shareholders get the Debenture holders get the
dividend. interest.
Payment of return Dividend can be paid to Interest can be paid to
shareholders only out debenture holders even if
of profits. there is no profit.
Allowable deduction Dividend is an Interest is a business
appropriation of profit expense and so it is
and so it is not allowed allowed as
as deduction. deduction from
profit.
Security for payment No Yes
Voting Rights The holders of The holders of
shares have voting debentures do not
rights. have any voting
rights.
Conversion Shares can never Debentures can be
be converted into converted into
debentures. shares.
Repayment in the event Shares are repaid Debentures get priority
of winding up after the payment of over shares, and so they
all the liabilities. are repaid before
shares.
Quantum Dividend on shares is an Interest on debentures is
appropriation of profit. a charge against profit.
Trust Deed No trust deed is executed When the debentures are
in case of shares. issued to the public,
DEPOSITS-REFER UNIT II (PROSPECTUS
AND DEPOSTS)
CHAPTER V-ACCEPTANCE OF DEPOSITS BY
COMPANIES-SEC 73-76
• Prohibition on acceptance of depositsfrom
public-SEC 73
• Repayment of deposits, etc., accepted
before commencement of this Act-SEC 74
• Damages for fraud-SEC 75
• Acceptance of deposits from public by certain
companies.-SEC 76
 CHARGES
CONCEPT OF CHARGE:
The financial institutions/banks do not lend their monies unless they are
assured that their funds are safe and they would be repaid as per agreed
repayment schedule along with payment of interest. In order to secure their
loans they resort to creating right in the assets and properties of the
borrowing companies, which is known as a charge on assets.
DEFINITION:
Section 2(16) of The Companies Act, 2013 defines a Charge as an interest
or lien created on the assets or property of a Company or any of its
undertaking as security and includes a mortgage.
PROVISIONS GOVERNING CHARGES UNDER COMPANIES ACT,
2013
• Applicable Section: Chapter VI- 77 to 87 of Companies Act, 2013.
• Applicable Rules: The Companies (Registration of Charges) Rules, 2014
KINDS OF
CHARGES FIXED
CHARGE FLOATING
CHARGE
Fixed Charge : Fixed charge is against a specific clearly identifiable and defined
property. The property under charge is identified at the time of creation of
charge. The nature and identity of the property does not change during the
existence of the charge.
Floating Charge : Floating charge is available only to companies as borrower. A
Floating charge does attach to any definite property but covers the property
of a circulating and fluctuating nature such as stock-in-trade, debtors, etc. It
attaches to the property charged in the varying conditions in which happens
to be from time to time.

CREATION OF CHARGE

WHO CAN FILE APPLICATION FOR REGISTRATION OF

CHARGE? TIME LIMIT FOR CREATION AND MODIFICATION OF

CHARGE
 DIVIDEND
ORIGIN AND MEANING
The word “Dividend” has origin from the Latin word “Dividendum”.
Dividend refers to that portion of profit that is paid to the shareholders of the
company. It is often paid in one financial year to the shareholders after the
final accounts of profit are ready and the same has to be distributed.
Dividend defined under section 2(35) of the Companies Act, 2013, includes
any interim dividend.
There are two types of dividends:
❖ Interim dividends
❖ Final dividends.
Interim dividend
The Act defines Dividend in terms of interim dividends which refer to the
dividend declared by company’s board during any time of the year before
official closing of financial year and calling of Annual General Meeting.
Final dividends
The dividends declared by the company after closing of the financial year
and approval of Board of Directors in Annual General Meeting.
Source of dividend:
The dividends can be declared out of –
1. It can be paid after providing for depreciation fund
out of the profits of the current or previous financial
year.
2. It can also be paid out of the money which Central or
State Governments provide against a guarantee for
the payment of dividend.
There are following Modes of Payment of Dividend:
[Section- 123(5)]
– Cash
– Cheque
– Dividend Warrant
– In any electronic Manner.
PROCEDURE OF DECLARATION AND
PAYMENT OF DIVIDEND
1.Issue atleast 7 clear days notice of the meeting of Board of directors. (In
case of listed companies, notify stock exchange(s) where the securities of
the company are listed, at least 2 working days in advance of the date of
the meeting as per regulation 29 of SEBI (LODR) Regulations, 2015)
2.Hold Board meeting and pass resolution for recommending the final
amount of dividend.
3.Listed companies are required to give atleast 7 days notice of Book
closure to stock exchange as per regulation 42 of SEBI(LODR)
Regulations 2015.
4.Close the register of members and the share transfer register of the
company
5.Hold a Board/committee meeting for approving registration of transfer/
transmission of the shares of the company, which have been lodged with
the company prior to the commencement of book closure.
6.Hold the annual general meeting and pass an ordinary resolution
declaring the payment of dividend to the shareholders of the company as
per recommendation of the Board.
7. In case of Interim dividend, it is not mandatory to take approval of
shareholders for declaration of Dividend, the Board may declare it in the
Board meeting-section 123(3)).
8. Prepare a statement of dividend in respect of each shareholder and it must
be ensured that the dividend tax is paid to the tax authorities within the
prescribed time.
9. Separate Bank Account is required to be opened and amount of dividend
payable shall be credited to the said account within 5 days of declaration.
10.Make arrangements with the bank and in collaboration with other banks if
required, for payment of the Dividend Warrants at par.
11. Dispatch dividend warrants within thirty days of the declaration of
dividend. In case of joint shareholders, dispatch the dividend warrant to the
first named shareholder.
12.In case dividend remaining unpaid or unclaimed, Company is required to
arrange for transfer of unpaid or unclaimed dividend to a special account
named “Unpaid dividend Account” within 7 days after expiry of the period
of 30 days of declaration of final dividend. (Section 124).
13.Transfer unpaid dividend amount to Investor Education and Protection
Fund (IEPF) after the expiry of seven years from the date of transfer
to unpaid dividend A/c.
 BORROWING POWERS OF A
COMPANY
Meaning:
Borrowing can be defined as a means through which Companies arrange
financial funds through external sources like bank loans, shareholders, public
investment, etc.
Types of borrowings:

Long Term Short Term Medium-term

Borrowings borrowings borrowings

Secured borrowing Unsecured Private borrowing

borrowings

Public borrowings
Power of the Board of Directors to Borrow Money
Section 180. Restrictions on powers of Board
Section 180(1)(c)-to borrow money, where the money to be borrowed, together
with the money already borrowed by the company will exceed aggregate of its
paid-up share capital and free reserves paid-up share capital, free reserves
and securities premium, apart from temporary loans obtained from the
company’s bankers in the ordinary course of business
ULTRA VIRES OR UNAUTHORISED BORROWINGS
There is a limit that has been set under which companies can borrow money in
the Act. If the companies go beyond and exceed the limit to borrow money
specified by the articles of the Act, it is ultra vires borrowings. It is generally
unauthorized borrowing as it is beyond the authority of the directors.
1.ASHBURY RAILWAY CARRIAGE & IRON CO. LTD. VS. RICHE
2.KRISHAN KUMAR & OTHERS VS. STATE BANK OF INDIA
CONSEQUENCES OF ULTRA VIRES BORROWINGS
❖ Injunction
❖ Subrogation
❖ Liability of directors
 LENDING BY COMPANIES
Meaning:
“Loan” is not defined anywhere in Companies Act, 2013.
However in normal parlance any transaction in which money is
given with the intention to be returned, with or without interest
is loan.
Section 185 explains Provisions under Company Law Related to
Direct or Indirect Loan or Advances to Directors by Company.
New Provisions with respect to giving loans or providing any
guarantee/security by the companies (made applicable with
effect from May th 2018) as amended by Companies
Amendment Act 7 2017
Loan or advances include loan represented by a book debt, to any
of the directors or to any other person in whom the director is
interested or give any guarantee or provide any security in
connection with any loan taken by him or such other person.
Section 185 (1) No company shall, directly or indirectly, advance any loan,
including any loan represented by a book debt to, or give any guarantee or
provide any security in connection with any loan taken by
a) any director of company;
b) any director of its holding company;
c) any partner or relative of any such director;
d) any firm in which any such director or relative is a partner.
Sec 185(2): Loan to person in whom director is interested – Allowed subject to
fulfilment of conditions
A company may advance any loan (including book debt) or give any guarantee
or provide any security to any person in whom any of the director of the
company is interested subject to the following conditions:
e) a special resolution is passed by the company in general meeting
f) the loans are utilised by the borrowing company for its principal business
activities.
Section 185(3) exempts the following individuals and entity from compliance
of section 185(1) & (2) with certain conditions
 1.giving of any loan to a managing or whole-time director subject to as a part
of the conditions of service extended by the company to all its employees or
pursuant to any scheme approved by the members by a special resolution; or
2.company which in the ordinary course of its business provides loans or gives
guarantees or securities for the due repayment of any loan and in respect of
such loans an interest is charged at a rate not less than the rate of prevailing
yield of one year, three years, five years or ten years Government security
closest to the tenor of the loan; or
3.any loan made by a holding company to its wholly owned subsidiary
company or any guarantee given or security provided by a holding company in
respect of any loan made to its wholly owned subsidiary company; or
4. any guarantee given or security provided by a holding company in respect
of
loan made by any bank or financial institution to its subsidiary company

185(4): Punishment
If any loan is advanced or a guarantee or security is given or provided or
utilised in contravention of the provisions of this section, the company shall be
punishable with fine which shall not be less than five lakh rupees but
which may extend to twenty-five lakh rupees, and the director or the other
person to whom any loan is advanced or guarantee or security is given or
provided in connection with any loan taken by him or the other person, shall
be punishable with imprisonment which may extend to six months or with
fine which shall not be less than five lakh rupees but which may extend to
 INVESTMENT BY COMPANIES
Investing in other companies is one of the best ways to expand
the company internationally and especially in a country like
India.
Reasons for a company to invest in other company:
❖ Hedging
❖ Liquidity management
❖ Partnership on the Long-term
❖ Eliminate Competition
❖ Speculation
Inter-corporate Loans and Investments
Section 186 of the Companies Act, 2013 provides for ‘Loans
and Investments by a Company’ which corresponds with
Section 372-A of the Companies Act, 1956. A company is
entitled to provide another company with loans, investment,
securities, and guarantees. The same can be done either with
the consent of the board or that of the shareholders.
Section186(1) says that a Company shall make the investment through not
more than 2 layers of investment companies.
Layer as per explanation (d) of Section 2 (87) of the Act in relation to a
holding company means its subsidiary and subsidiaries.
Investment Company means a company whose principal business is the
acquisition of shares, debentures or other securities.
The provisions of Section 186 (1) shall not apply in the following cases:
1.From acquiring any Company incorporated outside India. If such other
company has investment subsidiaries beyond two layers as per the laws of
such country.
2.A subsidiary company having any investment subsidiary for the
purposes of meeting the requirement under any law framed for the time
being in force.

Section186(2)- LIMITS FOR LOANS/INVESTMENTS/GUARANTEE/SECURITY

Section186(3)- APPROVAL FROM MEMBERS

Section186(4)-DISCLOSURE OF PARTICULARS OF LOAN,
GUARANTEE, SECURITY, AND INVESTMENT
FINANCIAL
Section186(4)-APPROVAL OF BOARDAND
PUBLIC
Section 186(5)-APPROVAL OF BOARDAND PUBLICFINANCIAL
INSTITUTIONS
Section 186(6)-COMPANIES REGISTERED UNDER SECURITIES
EXCHANGE BOARD OF INDIA
Section 186(7)-RATE OF INTEREST
Section 186(8)-DEFAULTER
COMPANY Section 186(9)-LOAN
REGISTER Section 186(10)-PLACE OF
REGISTER
Section 186(11)-NON-APPLICABILITY OF SECTION
❖ A banking company, an insurance company or a housing finance company
for transactions made in the ordinary course of business.
❖ A company framed with the sole purpose of financing industrial enterprises
or for providing infrastructure facilities.
❖ An organization that purchases the rights of shares.
❖ A company whose primary business is the acquisition of shares.
❖ A registered non-banking finance company that primarily focuses on the
acquisition of securities.
❖ Unlisted companies are legally authorized by the Ministry or Department
of
the State or Central Government.
Section 186(13)-Penalty for contravention
If any person or persons contravenes the provisions of this Section,
For Company
• Every company shall be liable to a penalty which shall be not less than 25,000/-
rupees, which may extend to 5,00,000/- rupees.
For officer
• Every officer who is in default shall be punishable with imprisonment for a
term which may extend to 2 years and fine which shall be not less than
25,000/- rupees, which may extend to 1,00,000/- rupees.

Section 187: Investments of company to be held in its own name.

All investments made or held by a company in any property, security or other
asset shall be made and held by it in its own name.
EXCEPTIONS
 MEMBER AND SHAREHOLDER
Section 2(55) defines “Member”, in relation to a company,
means—
(i) The subscribers of the memorandum of a company shall be
deemed to have agreed to become members of the company,
and on registration, shall be entered as members in its register
of members.
(ii)Every other person who agrees in writing to become a
member of a company and whose name is entered in its
register of members shall, be a member of the company.
(iii)Every person holding shares of a company and whose name
is entered as beneficial owner in the records of the depository
shall be deemed to be member of the concerned company.

“Every shareholder of a company is also known as a

member, while every member may not be known as a
shareholder.”
MEMBER AND SHAREHOLDER:
A member is a person whose name appears on the
Register of Members of the company. The shareholder
is a person who holds the shares of the Company. A
shareholder, referred commonly to as a stockholder, is
any person, company, or institution that owns at least one
share of a company’s stock. They play an important role
in the framing and profits of the company. Shareholders
are the owner of the company. They are the main
stakeholders in the company. There are two types of
shareholders namely Equity and Preference Share
holders.
Generally, these terms are used inter changeably but in
certain cases, shareholder need not necessarily be a
member and a member need not necessarily be a
shareholder of the company.
DIFFERENCE BETWEEN MEMBER AND
SHAREHOLDER
BASIS FOR COMPARISON MEMBER SHAREHOLDER

MEANING A person whose name is The person who owns the

entered in the register of shares of a company is known
members of a company, is the as shareholder.
registered member of the
company.

DEFINED IN Section 2 (55) Not defined

SHARE WARRANT The holder of a share warrant The holder of a share warrant
is not a member. is a shareholder.

COMPANY Every company must have a The company limited by shares

minimum number of members. can have shareholders.

MEMORANDUM The person who signs the After signing the

memorandum of association memorandum, a person can be
with the company becomes a a shareholder only when the
member. shares are allotted to him.
WHO CAN BECOME A MEMBER?
Company as a member of another
company

Partnership firm as a member

Foreigners as members

Minor as member

Person of unsound mind

Insolvent

Trade Union

Trustee
MODES OF ACQUISITION OF MEMBERSHIP
❖ Subscribing to the Memorandum of Association
❖ Transfer of shares
❖ Application and allotment of shares
❖ Private placement
❖ Succession
❖ Estoppel or acquiescence
MODES OF TERMINATION OF MEMBERSHIP
❖ By an act of the parties
❖ By the operation of the laws
BY AN ACT OF THE PARTIES
❖ Transfer of shares
❖ Lien on shares
❖ Redemption of shares
❖ Surrender of shares
BY THE OPERATION OF THE LAWS
❖ Death of a person
❖ Insolvency
❖ Court sales
❖ Winding up of a company
❖ Personation
❖ Failure to pay call
❖ Forfeiture of Shares
RIGHTS OF A MEMBER OF THE COMPANY

❖ Right to receive notice of meetings, attend, to take part

in the
discussion and vote at the meetings.
❖ Right to transfer the shares
❖ Right to obtain copies of memorandum and articles.
❖ Right to receive copies of the Annual report, financial statement,
and the auditor’s report
❖ Right to inspect record of proxies, register of members, minutes
books
❖ Right to participate in appointments and removal of directors and
auditors in the Annual General Meetings.
❖ Right to receive corporate benefits likerights, bonus etc
once
approved.
❖ Rights to apply to the Central Government for ordering
an
RIGHTS OF THE SHAREHOLDERS OF THE COMPANY
❖ There are various rights available to a shareholder. Different type of rights
has been discussed below:
❖ Appointment of directors
❖ Legal action against directors
❖ Appointment of company auditors
❖ Right to attend and vote at the annual general body meeting
❖ Right to call for general meetings
❖ Right to inspect registers and books
❖ Right to get copies of financial statements
❖ When the sale of any material of any company is done then the shareholders
should get the amount which they are entitled to receive;
❖ When a company is converted into another company then it requires prior
approval of shareholders. Also, all the appointment has to be done according
to all the procedures and also auditors and directors have to be done
❖ Right to approach the court in case of insolvency
DUTIES OF THE SHAREHOLDER OF THE COMPANY
❖ Shareholders should participate in the general body meetings so that they can
see and also can advise on the matters which they feel is not going good.
❖ Shareholders should consult on the matters of finance and other topics.
❖ Shareholders should be in touch with other members of the company so that