(Vii) Shares

7/30/2019 (Vii) Shares

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Shares


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What are SHARES?Definition:

Sec 2(46) of THE COMPANIES ACT,1956:

A share is a share in the share capital of a Company.

The amount of capital to be raised by a Company is

always divided into small parts or units of equal value

& these units are called SHARES


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Share Capital

Share: Share is defined as an interest having amoney value and made up of diverse rightsspecified under the articles ofassociation.

Share capital: Share capital means the capital

raised by the company by issue of shares. A share is a share in the share capital of the

company including the stock.

Share gives a right to participate in the profits

of the company, or a share in the assets whenthe company is going to be wound up.


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Features of a share

A share is not a negotiable instrument, but it is amovable property.

It is also considered to be goods under the Sale of

Goods Act, 1930. The company has to issue the share certificate.

It is subject to stamp duty.

The Call on Shares is a demand made for

payment of price of the shares allotted to themembers by the Board of Directors in accordancewith the Articles of Association.

The call may be for full amount or part of it.


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Types of Shares :The different kinds of shares which can be raised by

Companies are :

EQUITY SHARES

PREFERENCE SHARES

DEFERRED SHARES


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Equity Shares :The equity shares or ordinary shares are those shares onwhich the dividend is paid after the dividend on fixed rate

has been paid on preference shares.

Characteristics:

No fixed rate of dividend.

Dividend is paid after dividend at a fixed rate is paid on

preference shares.

At the time of liquidation, capital on equity is paid after

preference shares have been paid back in full. Non redeemable.

Equity shareholders have voting rights & thus, control the

working of the Company.

Equity shareholders are the virtual owners of the Company.


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Preference shares :Preference shares are those shares which carry with them

preferential rights for their holders, i.e, preferential right as to

fixed rate of dividend & as to repayment of capital at the time of

winding up of the Company.

Characteristics :

Fixed rate of dividend.

Priority as to payment of dividend.

Preference as to repayment of capital during liquidation of the

Company.

Generally preference shareholders do not have voting rights.

According to The Companies (Amendment) Act, 1988, the

preference shares are redeemable & the maximum period for

which they can be issued is 10 years.


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Advantages of preference sharesTax-free statusConsistent dividend payments

Frequency of payments

Disadvantages of preference sharesIt will not move like ordinary stocks.

It might not be the asset type for investors lookingfor explosive gains


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Kinds of Preference Shares :On the basis of cumulation of dividend :

Cumulative Preference Shares:

They are those shares on which the dividend at a fixed rate goes

on cumulating till it is all paid.

Non Cumulative Preference Shares:

These are those shares on which the dividend does not cumulate.

On the basis of participation :

Participating Preference shares:

This type of shares are allowed to participate in surplus profits

during the lifetime of the company & surplus assets duringwinding up.

Non Participating Shares:

These shares are not entitled to participate in surplus profit.

Dividend at fixed rate is given.


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Kinds of preference shares :On the basis of conversion :

Convertible preference shares:

The owners of these shares have the option to convert theirpreference shares into equity shares as per the terms of issue.

Non-convertible preference shares:

The owners of these shares do not have any right of convertingtheir shares into equity shares.

On the basis of redemption:

Redeemable preference shares:

These are to be purchased back by the company after a certainperiod as per the terms of issue.

Irredeemable preference shares:

These are not to be purchased back by the company during itslifetime.


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Deferred Shares :Deferred shares are those shares on which the payment of

dividend and capital (at the time of winding up of a company) is

made after money is paid in full on preference shares and equity

shares.

As per the provisions of the COMPANIES ACT,1956, no public

company can issue deferred shares.

Characteristics:

Rate of dividend is not fixed. It depends upon the availability

of profits & the discretion of the Board of the Directors.

Dividend is paid after payment of dividend on equity &

preference shares.

At the time of liquidation, capital on these shares is returned

after capital is repaid on both preference & equity shares.


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Share Certificate and Share Warrant

Share Certificate: The Share Certificate is a documentissued by the company and is prima facie evidence toshow that the person named therein is the holder ( title) ofthe specified number of shares stated therein.

Share certificate is issued by the company to the ( shareholder) allottee of shares.

The company has to issue within 3 months from the dateof allotment. In case of default the allottee may approachthe central government

Share Warrant: The share warrant is abearer documentissued by the company under its common seal. As sharewarrant is a negotiable instrument, it is transferred byendorsement and by mere delivery like any othernegotiable instrument.


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Transfer and Transmission of shares

AOA provides for the procedure of transfer ofshares. It is a voluntary action of the shareholder.

It can be made even by a blank transferIn suchcases the transferor only signs the transfer formwithout making any other entries.

In case it is a forged transfer, the transferorssignature is forged on the share transferinstrument.

Transmission of shares is by operation of law,e.g. by death, insolvency of the shareholder etc.


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Buy-Back of Securities

The company may purchase its securities backand it is popularly known as buy back of shares

To do so , the company has to be authorized

under the AOA. The company has to comply with the provisions

of the Company law to buy back its securities.

The listed company has to seek permission from

the SEBI (SERA 1998). Specifically for theprivate company etc, the Buy Back SecuritiesRules1999 will be applicable.


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Dividends

The sharing of profits in the going concerns andthe distribution of the assets after the winding upcan be called as dividends

It will be distributed among the shares holders

The dividends can be declared and paid out of:Current profits

Reserves

Monies provided by the government and thedepreciation as provided by the companies.It can be paid after presenting the balance sheetand profit and loss account in the AGM


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Dividend

Other than the equity shareholders, eventhe preferential shareholders can get thedividends. Rather they are the first ones to

get the dividends. Dividends are to be only in cash, if

otherwise specified in the AOA.

In exceptional cases, even the centralgovernment may permit the payment ofinterest to shareholders , even though thereis no profit.


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Thank you

Documents

(Vii) Shares