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Share and share capital

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the share and share capital details,kinds of share,allotment of shares are given

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Share and share capital

  1. 1. Share and share capital
  2. 2. Share capital • The term ‘capital’ and ‘share capital’ are used synonymously in cases of companies limited by shares. • Capital means the amount invested in an enterprise by its owners. Share capital is an aggregate amount of money paid on the shares and/or stock of a corporate enterprise. • Schedule III of Companies Act, 2013 provides that a company is required to show for each class of share capital- 1. the number and amount of shares authorised; 2. the number of shares issued, subscribed and fully paid up and subscribed but not fully paid up.
  3. 3. 1. Authorised / Nominal / Registered share capital- Section 2(8) authorised capital means such capital as is authorised by the memorandum of a company to be the maximum of share capital of the company. It is the maximum amount which the company is authorized to raise. Eg. ABC Limited is incorporated with an authorised capital of Rs. 10,00,000 divided into 60,000 equity shares of rs. 10 each and 40,000 preference shares of rs. 10 each. 2. Issued share capital- A company generally does not issue the whole of the authorised share capital. That portion of the authorised share capital which is offered for subscription by the company is called issued share capital. Section 2(50) of companies Act, 2013 defines issued capital as such capital as the company issues from time to time for subscription. Eg. ABC Limited issued Rs. 5,00,000 (out of the authorised capital of rs. 10,00,000) worth of shares divided into 30,000 equity shares of rs. 10 each and 20,000 preference shares worth rs. 10 each. 3. Subscribed share capital- Section 2(86) defines subscribed capital as such part of the capital of the capital which is for the time being subscribed by the members of the company. Eg. Out of the 30,000 equity shares issued to public only 20, 000 shares have been applied for by the public, then subscribed capital will be rs. 2,00,000 (20,000 shares of rs. 10 each) 4. Called up share capital- it is that portion of the subscribed capital which has been called up or demanded on the shares of the company. Eg. If rs. 5 has been called upon 50,000 shares each share having a nominal or face value of rs. 10 then the called up capital shall be rs. 2,50,000. 5. Paid up share capital- it means that amount paid up or credited as paid up on the shares issued and subscribed for, or otherwise alloted. Eg. If company has called for rs. 5 on each share and only rs. 4 has been paid on each share then paid up capital shall be rs. 2,00,000 (50,000 * 4) 6. Uncalled share capital- that portion which has not yet been called up or demanded by the company on the shares subscribed (and which the shareholders are liable to pay as and when called). 7. Reserve Capital- That amount of the uncalled capital which the company has decided by special resolution as per section 99, not to call except in the event of company being wound up. [This is different from capital reserve of the company which is created out of the company’s profits]
  4. 4. Share-Meaning • Capital of a company is divided into units of small denomination and each such unit is called share. • Section 2(84) of Companies Act, 2013 defines share as “share means share in the share capital of a company and includes stock.” • Commissioner of Income Tax v. Standard Vacuum Oil Company- (1996) 1 Comp. L.J. 187 (SC)- “A share in a company is meant 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.” • Share is a right to participate in the profits made by a company. • Share is a tangible and movable property. It is transferable as provided in the Articles of Association of the company.
  5. 5. Stock • Stock is a bundle of fully paid up shares put together for convenience so that it may be divided into any amount and transferred into any small fractions and sub-divisions without having any regard to the original face value of shares. • Differences between shares and stock- • Shares can be fully or partly paid up shares whereas stock is always fully paid up. • Shares have a nominal value but stock does not have a nominal value • Shares cannot be issued in fractions but stock can be issued in fractions. • Shares have a distinctive number when they are issued in dematerialisation form (demat form) however, stock does not have any distinctive number • A company can issue shares and does not issue stock. But fully paid shares can be converted into stock.
  6. 6. Kinds of shares • Section 43 of Companies Act, 2013 provides that a company may issue following types of shares- (a) equity share capital— (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and (b) preference share capital: Provided that nothing contained in this Act shall affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act. Explanation.—For the purposes of this section,— (i) equity share capital‘‘, with reference to any company limited by shares, means all share capital which is not preference share capital; (ii) 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, 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; • Companies are allowed to issue equity shares with differential rights as to dividend, voting etc. Rule 4 of Companies (Share Capital with Debentures) Rules, 2014 provides for certain conditions which if satisfied a company can issue such shares.
  7. 7. Kinds of preference shares • Cumulative and non-cumulative preference shares • Participating and non-participating preference shares • Reedemable and Irredeemable preference shares • Convertible and non-convertible preference shares
  8. 8. General principles of allotment 1. Allotment to be by proper authority i.e. board of directors of company or a committee authorized to allot shares on behalf of the board. If not by proper authority then allotment shall be invalid. 2. Allotment of shares must be made within reasonable time (as per section 6 Indian Contract Act) 3. Allotment must be absolute and unconditional. 4. Allotment must be communicated
  9. 9. Allotment of shares • Section 39(4) of companies act , 2013- allotment means the appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person. • Till such allotment, the shares do to exist as such. Only on allotment do the shares come into existence. • Allotment means only the original or the first allotment or the allotment of new shares and not re-issue of shares in lieu of shares which have for some reason been forfeited. • Section 39 provides that the amount payable as application money on each share must not be less than 5% of the nominal value of the share. It also prohibits allotment unless minimum subscription is received. • An application to take shares is an offer as per the Indian Contract Act and the applicant can also revoke the offer at any time before the allotment of shares by the company (i.e. acceptance of offer). • Since allotment is an acceptance of an offer to take shares, it must be duly communicated. Contract is binding on company and allottee when allotment is made by a resolution of the Board of Directors and notice thereof has been sent to the allottee.
  10. 10. Statutory restrictions on allotment- 1. Minimum subscription and application money- Section 39 – minimum subscription to be stated in the prospectus. Minimum subscription means the amount of money, which in the opinion of directors is enough to meet the purchase price of property to be defrayed partly or wholly out of the proceeds of the issue, preliminary expenses and working capital. Allotment cannot be made unless atleast minimum subscription money has been raised and application money, which must not be less than 5% of the nominal value of shares has been received in case. If minimum subscription not received within 120 days of issue of prospectus, the money received from applicants must be refunded without interest. (i.e. within 130 days) 2. Red herring prospectus and shelf prospectus- red herring prospectus shall be filed by the company with the registrar atleast 3 days prior to the opening of the subscription list or the offer. Shelf prospectus has to be filed by the company with the Registrar at the stage of the first offer of securities/ shares. 3. Opening of the subscription list- no allotment shall be made until the beginning of the fifth day from the date of issue of prospectus. This is called time of opening of the subscription list. 4. Listing of shares in stock exchange- section 40 – A company making an offer of shares or debentures to the public shall make an application for the shares or debentures to be dealt with in one or more recognised Stock Exchanges. Listing of shares has been made compulsory and listing makes the securities freely marketable. • Irregular allotment- If the provisions contained in section 39 have not been complied with then the allotment is said to be irregular.
  11. 11. • Buy-back of shares- section 67, 68 and 69- Section 67 (1) prohibits companies from buying their own shares as that would result in reduction of their share capital. A public company or its subsidiary is prohibited from financing the purchasing by another person of its own shares or of its holding company’s shares. However, there are certain exceptions to this rule, which are as follows: 1. Redemption by a company of its redeemable preference shares as per section 55 of the Companies Act, 2013 2. Lending of money by a banking company in its ordinary course of business; 3. Provision of financial assistance by a company: a. for the purchase of fully paid shares by trustees to be held for the benefit of employees of the company including directors holding salaried post; b. for purchase of fully paid up shares by bona fide employees of the company to be held by themselves by way of beneficial ownership (this financial assistance is by way of loan to such bona fide employees) 4. In pursuance of the Tribunal’s order as per section 241 of the 2013 Act, a company may buy its own shares from any member.
  12. 12. • Section 68 provides for buy back of shares or securities by the company. The company may purchase its own shares or securities out of its 1. Free reserves; 2. Securities premium account; or 3. Proceeds of the issue of any share or other specified securities. Restrictions on buy back as provided under section 68(2)- 1. Buy back has to be authorised by its Articles of Association. 2. Special resolution to that effect must be passed in general meeting of the company. 3. Buy back should not be less than 25% of the total paid up capital and free reserves of the company. 4. The shares or securities must be fully paid 5. The buy back of shares or other specified securities should be listed on recognized stock exchange in accordance with regulations made by the Securities & Exchange Board of India.

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