Shares & Share Capital

Shares & Share Capital
Shantanu Braj Choubey

Associate Teacher
Meaning of Shares
• S. 2(84) of the Companies Act, 2013.
• CIT v. Standard Vacuum Oil Co. [1966] Comp. LJ 187:

– A share denotes “not any sum of money but an interest
measured by a sum of money and made up of diverse rights
conferred on its holders by the articles of the Company which
constitute a contract between him and the Company.”
• A share carries with it certain rights and liabilities while the

company is a going concern or while the company is being
wound up.
Nature of a Share
• In India, a share is regarded as goods.
• S. 2(7) of the Sale of Goods Act, 1930:

– “goods” mean any kind of movable property other than actionable claims and money and
includes stock and shares.
• Although it is a movable property, but its transferability depends on the AoA. [S.
44]
• S. 58 (2) – no restriction on transferability of shares in public companies
• Proviso – any contract in respect of transfer of securities between 2 or more

persons shall be enforceable (in light of the judgment in Messers Holdings Ltd. v.
Shyam Madanmohan Ruia [2010] 159 Comp Cas 29 (Bom).
Nature of a Share
• A share is a movable property but not a
tangible property. [S. 46]
• 3 phases of share:
– When it is part of the share capital;
– When it is allotted to a shareholder; and
– When it is converted into a stock.
Share v. Stock
• Share represents a unit into which the capital of
a company is divided.
• Stock is the aggregate of fully paid-up shares of

a member merged into one fund of equal value.
• Stock can be divided into fractions of any

amount and such fractions are transferable.
Shares Stocks
It has a nominal value. It doesn’t have nominal value.
It has a distinctive number which It bears no such number.

distinguishes it from other shares.
Originally shares can only be issued Company cannot make an original issue of
stock. It can be issued by converting fully
paid-up shares.
A share may either be fully paid-up or A stock can only be fully paid-up.
partly paid-up.
A share cannot be transferred in fractions. It can be transferred in fractions.
All shares of a class are of equal Stock may be of different denomination.

denomination.
Kinds of Shares
• Only two kinds of shares can be issued by a
company [S. 43]:
– Equity share capital –
• With voting rights, or
• With differential rights as to dividend, voting or
otherwise.
– Preference share capital.
Preference Shares
• Those shares that fulfil both of the following
requirements:
– Preferential dividend of fixed amount or fixed rate
during the life of the company.
– Preferential right to be paid on the winding-up of
the company.
Types of Preference Shares
• Participating or non-participating:
– Participating preference shares carry with them the right to a
fixed preferential dividend and, in addition, carry a right to
participate in the surplus profits along with equity
shareholders after dividend at a certain rate has been paid to
them.
– Also in the event of winding-up, if any surplus is left.
– The right to participate may be given either in the MoA or

AoA or by virtue of their terms of issue.
• Cumulative and non-cumulative shares:
– Cumulative preference shares confers a right to claim
a fixed divided for the past and the current years out
of future profits.
– Non-cumulative preference shares gives right to a
fixed dividend out of the profits of each year.
– If no profits or no dividend declared, nothing is paid
to them.
– Preference shares are cumulative unless expressly
stated to be non-cumulative.
• Redeemable and Irredeemable:
– Irredeemable preference shares cannot be issued.
– Redeemable preference shares may be issued
which can be redeemed within a period of not
exceeding 20 yrs from the date of their issue
(more than that for infrastructure projects).
Conditions for redemption of shares
• Can only be redeemed out of the profits of the

company.
• No redemption unless shares are fully paid.
• Capital Redemption Reserve Account – a sum

equal to nominal amount of the shares to be
transferred to this account out of the profits.
Equity Shares
• Equity shares are those shares which are not preference
shares.
• After satisfying rights of preference shares, the equity shares

shall be entitled to the remaining amount of distributable
profits.
• Dividend not fixed.
• The rate of dividend is recommended by BoD and declared by

shareholders.
Rights of equity shareholders [S. 47(1)]
• A right to vote; and
• Voting rights proportional to the share in the

paid-up equity share capital.
• Preference shareholders can vote only on such

resolution which directly affect their rights.
Non-voting Shares
• These are shares which carry no voting rights.
• Can be issued under S. 43.
• Preferential shareholders’ voting rights [S.

47(2)]

Shares & Share Capital

Uploaded by

Copyright:

Available Formats

Shares & Share Capital

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Shares & Share Capital

Uploaded by

Copyright:

Available Formats

Shares & Share Capital

Shantanu Braj Choubey

• CIT v. Standard Vacuum Oil Co. [1966] Comp. LJ 187:

• A share carries with it certain rights and liabilities while the

• S. 2(7) of the Sale of Goods Act, 1930:

• S. 58 (2) – no restriction on transferability of shares in public companies

• Proviso – any contract in respect of transfer of securities between 2 or more

• Stock is the aggregate of fully paid-up shares of

• Stock can be divided into fractions of any

It has a nominal value. It doesn’t have nominal value.

It has a distinctive number which It bears no such number.

A share cannot be transferred in fractions. It can be transferred in fractions.

All shares of a class are of equal Stock may be of different denomination.

– Also in the event of winding-up, if any surplus is left.

– The right to participate may be given either in the MoA or

• Can only be redeemed out of the profits of the

• No redemption unless shares are fully paid.

• Capital Redemption Reserve Account – a sum

• After satisfying rights of preference shares, the equity shares

• Dividend not fixed.

• The rate of dividend is recommended by BoD and declared by

• A right to vote; and

• Voting rights proportional to the share in the

• Preference shareholders can vote only on such

• Can be issued under S. 43.

• Preferential shareholders’ voting rights [S.

You might also like