SHARE CAPITAL

Share capital of a company refers to the amount invested in the company for it to carry out its operations. In other words it refers to the amount of capital raised or to be raised by a company though the issue of shares. A share is the interest of a member in a company. 

According to Section 2(84) of the Companies Act, 2013 “share” means a share in the share capital of a company and includes stock. It represents the interest of a shareholder in the company, measured for the purposes of liability and dividend. It attaches various rights and liabilities. A share is the smallest unit into which the company's capital is divided, representing the ownership of the shareholders in the company. A stock on the other hand is a collection of shares of a member that are fully paid up.

Kinds of Shares

As per the Section 43 of Companies Act, 2013, a company can issue only two types of shares. 

1. Equity Share Capital [Section 43(i)]

All share capital which is NOT preferential share capital is Equity Share Capital. In other words, equity shares are those which do not carry with them preferential rights as to payment of dividends and repayment of capital when the company goes into liquidation. As per this section equity share capital may be divided on the basis of voting rights and differential rights(DVR). 

A DVR share is like an ordinary equity share, but it provides fewer voting rights to the shareholder. The Companies (Share Capital and Debentures) Rules, 2014 provide that no company whether it is unlisted, listed or a public company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions:

(a) the articles of association of the company authorizes the issue of shares with differential rights; the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders:

(b) Shares with differential voting rights shall not exceed 26% of the total post issue paid-up equity share capital.

Features of Equity Share Capital

• Equity shareholders have residual right over the company.
• Dividend is paid to the equity shareholders only after paying fixed dividend to preference shareholders.
• During the time of liquidation, equity shareholders have right to claim over capital after preference shareholders have been paid.
• Equity shareholders have right to vote on every resolution in general meeting.
• There is no fixed dividend to equity shareholders like preference share capital.

2. Preference Share Capital [Section 43(ii)]

Preference share capital 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, which may either be free of or subject to income-tax; and

(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;

According to section 55 of the Act, a company limited by shares cannot issue any preference shares which are irredeemable. However a company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue. Preference Shares, as the name suggests are the shares in which shareholders get the profit of the company in form of dividends before Equity shareholders at a fixed dividend rate. Money raised through the issue of preference shares is called preference share capital. Preference shareholders do not have the authority to control the affairs of the company. In case of company insolvency issues, Preference shareholders are paid first from company assets.

Types of Preference Share Capital

Will be continued...........