Corporate Law

Topic:-
Shares & Share Capital
 Share-holders
• Pooja Ajmera P 60
• Rupal Nahar P 29
• Swati Khandelwal P 36
• Anil Varma P 58
• Ravi Ramparia P 41
• Dipti Joglekar P 54
• Meenal Saturkekar C 31
 SHARES
DEFINITIONS

• The Companies Act defines a share as “Share in the

Share Capital of the company, and includes stock
except where a distinction between stock and share is
expressed.”

• According to J.Farwell a share is “ the interest of a

shareholder in a company measured by the sum of
money, for the purpose of liability in the first place
and of interest in the second.”
NATURE OF A SHARE

• Shares in India, are both goods as well as

chose – in – action. It is bundle of rights, each
one of which is a legal chose – in – action. The
legal title to the share is vested in the person
entitled to it, either by the company or by
transfer from a former holder.
STOCKS:

Share clubbed together is known as

stock

When company issue share certificate

then it is STOCKS
Distinction between Share and Stock
Shares Stocks
•It has the nominal value or face •It has no nominal value or face
value value
•It has the distinctive number •It has no distinctive number
•Shares can be originally issued •A company cannot originally
by a company. issue stock first shares will be
issued, the shares are fully paid
up then can be converted into
stock.
•Share is an indivisible unit •Stock may be transferred in
therefore it cannot be any fractions.
transferred in fraction and it can
be transferred only as a whole.
•Shares of the same class are •Stock may be of different
of equal denomination. denomination.
 TYPES OF SHARES

•Before Passing Companies Act, 1956, Shares Used

To Be In Three Types

Ordinary Shares
Preference Shares
Deferred Shares

•After Companies Act , Companies Issued Only

Two Types Of Shares
Preference Shares
Equity Shares
ALLOTMENT OF SHARES

• When An Application Is
Accepted, It Is An Allotment.

• It Is An Appropriation Out By
The Directors To Transfer
The Ownership Of Shares To
A Particular Person.

• A Valid Allotment.
 STATUTORY RESTRICTIONS ON
ALLOTMENT

• Prohibition Of Allotment Unless Minimum

Subscription Received [S. 69]:

• Prohibition Of Allotment In Certain Cases

Unless Statement In Lieu Of Prospectus
Delivered To Registrar [S.70]:

• Effect Of Irregular Allotment [S.71]:

 STATUTORY RESTRICTIONS ON
ALLOTMENT

• Applications For, And

Allotment Of, Shares And
Debentures[S.72] :

• Shares To Be Dealt In On
Stock Exchange [S.73] :

• Over-subscribed Prospectus
[S.73(2-a)] :
GENERAL PRINCIPLES

• ALLOTMENT BY PROPER AUTHORITY

• WITHIN RESONABLE TIME

• MUST BE COMMUNICATED

• ABSOLUTE AND UNCONDITIONAL

CERTIFICATE OF SHARES
SHARE CERTIFICATE
Transfer of shares
• When joint stock companies were established, the
great object was that the shares should be capable
of being transferred. Accordingly, by section 82 of
the companies Act, it is provided that the shares of a
member in a company shall be moveable property
capable of being transferred in the manner provided
by the articles of the company.

RESTRICTIONS ON THE TRANSFER OF SHARES

• Is open to a company to restrict the right of its
members to transfer their shares. The article of a
private company as against those of a public company
contain more rigorous restrictions on its members to
transfer their shares.
BROKERAGE
• The Company Act, 1956, permits brokerage to
be paid as has been lawful for a company to pay.
It has been recognized in Metropolitan Coal
Consumers Assn vs. Scringeour that reasonable
brokerage should always be allowed.

• Brokerage is different from underwriting

commission. A broker does not undertake to
subscribe for shares to the extent of public
default.

• Brokers are professional men, such as “stock-

brokers, bankers and the like, who exhibit
prospectus and send them to their customers,
and by whose mediation the customers are
induced to subscribe.
 ISSUE OF SHARES AT PREMIUM
• If the market exists, a company
may issue its shares a price higher
than their nominal value. There is
no restriction on the sale of share
at a premium.

• SEBI guidelines have to be

observed as they indicate when an
issue has to be at par and when
premium is chargeable.

• Premium may be received in cash or

kind. An amount received extra
than the nominal value due to the
premium should be carried to the
share premium account.
Types of Share
Equity shares

• Equity shares, with reference to any

company limited by shares , are those
which are not Preference shares
[Sec.85(2)].
• The holders of these shares are entitled to
dividend after the fixed dividend on
preference shares has been paid.
• The dividend to equity shareholders will
vary with the amount of profits available
for distribution.
Equity shares

 These shares carry the right to receive the

whole of surplus profits after the preference
shares, if any.
 Further, directors have the sole right of
recommending dividends to such shares
and as such they may not get any dividends
in case the director choose so.
 Holders of equity shares are the actual
owners of the company.
 Equity shares
•Advantage •Disadvantage
•Equity shares do not create any obligation to pay a •If only equity shares are issued the company can
fixed rate of dividend. not take the advantages of trading on equity.

•Equity shares can be issued without creating any •As equity capital can not be redeemed there is a
charge over the assets of the company. danger of overcapitalization.

•It is a permanent source of capital and the •Equity share holders can put obstacles in
company has not to repay it except under management by manipulation and organizing
liquidation. themselves.

•Equity share holders are the real owners of the •During prosperous periods higher dividends have
company who have the voting rights. to be paid leading to increase in value of shares in
the market and speculation.

•In case of profits equity share holders are the real •Investors who desire to invest in safe securities
gainers by way of increased dividends and with a fixed income have no attraction for such
appreciation in the value of shares. shares.
Preference shares

• Such shares enjoy some preferential

right:
1: As to the payment of dividend at a fixed
rate during the life of the company.
2: As to the return of capital winding up of the
company.
If any share carry only one of above these
two preferential rights, they will be treated as
equity shares.
Kinds of Preference share

• Cumulative preference shares

• Non-cumulative preference shares
• Participating preference shares
• Non-participating preference shares
• Convertible preference shares
• Non-convertible preference shares
• Redeemable preference shares
• Irredeemable preference shares
 Comparison between Preference & equity shares

•Preference shares •Equity shares

•The rate of dividend on equity shares depends
•These shares are entitled to a fixed rate of upon the amount of profit available and the funds
dividend. requirements of the company for future expansion
etc.

•Dividend on these shares is paid in preference to •The dividend on equity shares is paid only after the
the equity shares. preference dividend has been paid.

•Equity shares can not be redeemed except under

•Redeemable preference shares may be redeemed
a scheme involving reduction of capital or buy back
by the company.
of its own shares.

•An equity share holder can vote on all matters

•The voting rights of these shares are restricted.
affecting the company.

•The preference shares have preference to equity shares with regard to payment of capital on winding up.
 Deferred shares

 They are also known as “founder shares",

since they are often held by the promoter
of the company.
 They are issued as other ordinary shares
and gets a fixed dividends just like
preference shares.
 But they are the last to receive both as
regards dividends and repayment of
capital.
 SHARE CAPITAL
• Share capital means the capital raised by a company by the
issue of shares.

kinds OF SHARE CAPITAL

• The capital of the company may be two types:

Preference Share Capital : In case of a company limited

by shares, that part of the capital of the company which
carries a preferential right as to payment of dividend
during the lifetime of the company and repayment of
capital on winding up of the company is known as
Preference Share Capital.

Equity Share Capital : All the share capital which is

not preference share capital is known as equity share
capital. Capital which does not carry any preferential
rights.
 Types of Share Capital
• Authorized capital
• Issued capital
• Subscribed capital
• Called up capital
• Un-called capital
• Paid-up capital
• Reserve capital
PREFERENCE SHARE CAPITAL

• Preference share capital means that part of

the share capital of a company which fulfils
both the following requirements:

 During the continuance of the company it

must be assured of a preferential dividend.

 On the winding up of the company it must

carry a preferential right to be paid up.
VOTING RIGHTS
• EQUITY SHAREHOLDERS RIGHTS[sec. 87 (1)] : An
equity shareholder of a company limited by
shares has a right to vote on every resolution
placed before it. His voting right on a poll is in
proportion to his share of the paid-up equity
capital of the company.
• Preference share capital[sec. 87 (2)] : A preference
shareholder has the right to vote on those
resolutions which directly affect his rights. Any
resolution for winding up the company or for the
repayment or reduction of its share capital is
deemed to directly affect the rights of the
preference share holder.
 FURTHER ISSUE OF CAPITAL
Further issue of capital of a company may take place
• By allotment of new shares [sec. 81(1) to (3)]: A public
company limited by shares may, at any time, increase
its subscribed shares capital within the limit of
authorized capital by issuing new shares. It is for the
directors to decide whether an increase in the
subscribed capital of the company is necessary or not.

• by conversion of debentures or loans into shares [sec. 81(4)

to(7)] : where a company has taken loan from the
central government by issuing any debentures or
otherwise, the government may, in the public interest ,
convert such debentures or loans into shares in the
company.
Alteration of capital clause

Alternation in the capital clause of the

memorandum may be of the following types:

• Alteration of share capital[sec. 94-97]

• Reduction of capital[sec.100-105]
• Reserve share capital or reserve
liability[sec.99]
• Variation of the rights of the share
holders[sec.106-107]
• Reorganization of capital[sec.390-391]
 ALTERATION OF CAPITAL
A limited company having a share capital
may, if so authorized by its Articles, alter
its share capital as follows

• Increase nominal share capital by issuing

new shares

• Consolidate and divide all or any part of its

share capital into shares of larger amount

• Convert fully paid-up shares into stock or

vice versa

• Sub-divide its shares, or any of them, into

shares of smaller amount, and

• Cancel share which have not been taken up

and diminish the amount of its authorized
capital by the amount of the shares so
cancelled.
REDUCTION OF CAPITAL
Under sec 100, a company limited by shares having a
share capital may reduce its share capital. Subject to
the confirmation by the court, in any of the following
three ways:

• It may extinguish or reduce the liability on any of its

shares in respect of share capital not paid-up; or

• It may either with or without extinguishing or

reducing liability on any of its shares, cancel any paid-
up capital which is loss, or is unrepresented by
available assets; or

• It may, either with or without extinguishing or

reducing liability on any of its shares , pay-off any
paid-up share capital which is in excess of the wants
of the company.
Reserve share capital or reserve liability

• This section provides that by

passing a special resolution, a
company may determine that
any portion of its share capital
which has not already been
called up shall not be capable
of being called up except in
the event of company's
winding up.
• Such capital is called reserve
share capital.
Variation of the rights of share holders

Share capital of a company is divided into different

classes of shares which may have different rights
attached to them. if the company intends to change
the rights of any class of share holders, the following
procedure has to be followed:

• Variation not prohibited

• Special resolution
Reorganization OF CAPITAL
The reorganization of share capital
of a company may take place

• By the consolidation of shares of

different classes; or
• By the division of shares of one
class into shares of different
classes; or
• By both these methods.

The reorganization of the share

capital of a company may be
proposed

• Between a company and its

creditors or any of class of them;
or
• Between a company and its
members or any classes of them.
 REFERENCES
• COMPANY LAW - AVTAR SINGH

• COMPANY LAW - R P & S N MAHESHWARI

• ELEMENTS OF COMPANY LAW – N.D.KAPOOR

• COMPANY LAW – ASHOK K BAGRIAL

THANKS TO
ONE AND
ALL