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Shares and Share Capital

MEANING OF SHARES
• Section 2(84)- share means a share in the share capital
of a company and includes stock
• Smallest unit in which the company’s capital is divided
• Represent the ownership of the company
• Stock- conversion of fully paid shares into the stock-
always fully paid
• Nature of shares- Regarded as goods u/s 2(7) of the
Sale of Goods Act, 1930
• Under Section 44 of this Act- movable transferable
property transferable in the manner provided under
AOA
Commissioner of Income Tax v. Standard
Vacuum Oil Co. [(1966) Comp. LJ 187 (SC)]

Share in a company does not mean any sum of


money but an interest measured by a sum of money
and diverse rights conferred on its shareholders
• More than just the sum of money
• Interest measured by a sum of money- how many
shares you hold affects the interest you will have in
company
• Diverse rights- have a share of profit, attend
meetings, vote
Bucha F. Guzdar v. Commissioner of
Income Tax [AIR 1955 SC 617]
• Share as a right to participate in the profits made
by a company, while it is a going concern and
declares dividend, and in the assets of the
company when it is wound up in short.
• Does not merely represent the interest of the
shareholders in a company, it carries with it certain
rights and liabilities while the company is a going
concern or while the company is being wound up
• Represents- ‘a bundle of rights and obligations’
Categories of Share capital
• Authorised/nominal/registered- maximum capital
that a company can have unless it alter its MOA
• Issued- part of Authorised capital issued for
subscription
• Subscribed- part of issued share capital subscribed
• Called up- amount called up on each share
• (uncalled amount can be kept as reserve capital to be
called at the time of winding up)
• Paid up- amount paid up on every share
Share capital- Section 60
PUBLICATION OF AUTHORISED, SUBSCRIBED AND
PAID-UP CAPITAL
• Where a notice/ advertisement/ official
publication/ business letter/ billhead/ letter paper
of a company has amount of authorised share
capital- in equally prominent position and equally
conspicuous characters- state- subscribed and paid
up amount
• Default in making the statement- penalty on
company- 10,000/- and every officer- 5,000/- for
every default
Alteration of share capital – section 61
POWER OF COMPANY TO ALTER ITS SHARE CAPITAL
• Limited company having share capital
• Authorisation of the AOA
• Alters its MOM in general meeting
• HOW-
• Increase authorised share capital
• consolidate and divide all or any of its share capital into
shares of a larger amount than its existing shares:
*Provided that no consolidation and division which
results in changes in the voting percentage of shareholders shall
take effect unless it is approved by the Tribunal on an application
made in the prescribed manner;
Alteration contd…
• convert all or any of its fully paid-up shares into stock,
and reconvert that stock into fully paid-up shares of any
denomination;
• sub-divide its shares, or any of them, into shares of
smaller amount than is fixed by the memorandum, so,
however, that in the sub-division the proportion
between the amount paid and the amount, if any,
unpaid on each reduced share shall be the same as it
was in the case of the share from which the reduced
share is derived;
• cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed
to be taken by any person, and diminish the amount of
its share capital by the amount of the shares so
cancelled. (NOT TO BE TAKEN AS REDUCTION OF SHARE
CAPITAL)
Notice to be given to registrar for
alteration of share capital- section 64
• Notice to the Registrar within 30 days:
• Alteration of share capital u/s 61
• An order of Government u/s 62 (4) and 62(6) that has
the effect of increasing the authorised capital of
company (Section 62- further issue of the capital)
• Redemption of preference shares
• Failure- Company and the officer- 1,000/- for each
day or 5 lakh (whichever is less)
Certificate of shares- section 46
• Issued under the common seal of the company, if
any or signed by 2 directors and CS, wherever
appointed
• Specify the shares held by the person
• Prima facie evidence of the title of the person to
such shares
• Duplicate certificate may be issued:
• Proved to have been lost or destroyed
• Defaced, mutilated or torn and is surrendered to the
company
Share certificate contd…
• Manner of issue of share certificate or duplicate,
form of such certificate, particulars to be
mentioned in the register of members and other
matters- as prescribed- form SH.1
• If shares held in depository- record of depository is
the prima facie evidence of the interest of
beneficial owner
• If duplicate certificate issued to defraud-
punishable with 5 times the face value of shared
involved , extended to 10 times or 10 crores
whichever is higher, officer- u/s 447
Classification of share capital based
upon the complete interpretation of
Section 43

Share capital

Equity share Preference


capital share capital

Cumulative or Participating Redeemable


Uniform Differential
non- or non- or non-
voting rights voting rights
cumulative participating redeemable
Section 43 contd…
• Equity share capital- share capital which is not
preference share capital
• Preference share capital- with reference go
company limited by shares- share capital which
carries preferential right with respect to-
• Payment of dividend- fixed amount or fixed rate (either
free of tax or subject to tax)
• Repayment- at the time of winding up
• Capital shall be deemed to be preference even
though it is entitled to right to participate in the
surplus of the company (which remains after every
capital has been repaid) along with capital which
does not have any preferential right.
EQUITY SHARE V. PREFERENCE SHARES
• Voting rights on every • Voting on certain
resolution resolutions (affecting
• owners their rights and
repayment/reduction
of equity or preference
shares)
• Voting on all
resolutions- if dividend
is not paid for 2 or
more years
• Owners after the shares
are converted into
equity shares
Contd…
• Right to dividend after • Fixed rate or fixed
preference shares amount
• No fixed rate
• Repayment after • Preference on
winding up and after Repayment at the time
preference of winding up
shareholders are paid
• Residual rights over the • Residual rights only if
company mentioned
Voting Rights- under Section 47
• (1) Subject to provisions of Section 43, Section 50(2)
and Section 188(1)
• Every member of a company limited by shares and holding
EQUITY share capital- have a right to vote on every
resolution placed before the company
• Voting right to be in proportion to his share in the paid-up
share capital of the company
• (2)- preference shareholder- right to vote only on
resolutions placed before the company which is
directly affecting their rights and any resolution for
winding up of the company or for the repayment or
reduction of equity or preference share capital
- voting right shall be in proportion to his share in the
paid up capital
Voting rights contd…
• Proportion of voting rights of equity share holders
and preference share holders shall be same as the
paid-up capital of equity and preference shares
• When preference shareholders shall have a right
to vote on all resolutions placed before the
company- dividend in respect of a class of
preference shares has not been paid for a period of
two years or more
Variation in Shareholders’ Rights
(Section 48)
• When the share capital of the company has
different classes of shares
• Rights attached to shares of any class may be varied
• Consent of holders of at least 3/4th of the issued
shares of that class in writing OR
• special resolution passed at a separate meeting of
the holders of that class if:
• There is a provision with respect to such variation is
contained in the MOA or AOA of the company; or
• No provisions, if variation is not prohibited by the terms
of issue of shares of that class
Section 48 contd…
• If variation of rights of one class affects the rights of
other class- consent of at least 3/4th shareholders
of other class also to be obtained
• If more than 10% of the shareholders did not
consent or vote in favour of variation- application
by shareholders to the Tribunal to have the
variation cancelled
• No variation to have effect unless and until
confirmed by the Tribunal
• Time for making application- within 21 days after
the date on which the consent was given or the
resolution was passed
Section 48 contd..
• Decision of tribunal shall be binding
• Company to file the copy of order of tribunal within
30 days to the registrar
• Penalty for complying with the provisions of this
Section against company and officers of the
company
Calls on shares of same class to be
made on uniform basis (Section 49)
• Where any calls for further share capital are made
on the shares of a class, such calls shall be made on
a uniform basis on all shares falling under that
class.
• Explanation.—For the purposes of this section,
shares of the same nominal value on which
different amounts have been paid-up shall not be
deemed to fall under the same class.
Company to accept unpaid share
capital, although not called up
(Section 50)
• (1) A company may, if so authorised by its articles,
accept the whole or a part of the amount
remaining unpaid on any shares held by a member,
even if no part of that amount has been called up.
• (2) A member of the company limited by shares
shall not be entitled to any voting rights in respect
of the amount paid by him under sub-section (1)
until that amount has been called up.

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