Professional Documents
Culture Documents
Equity Shares Under Compainies Act 2013
Equity Shares Under Compainies Act 2013
DEFINITION
Equity shares are the main source of finance of a firm. It is issued to the
general public. Equity shareholders do not enjoy any preferential rights
with regard to repayment of capital and dividend. They are entitled to
residual income of the company, but they enjoy the right to control the
affairs of the business and all the shareholders collectively are the
owners of the company.
2. Equity shareholders are the actual owners of the company and they
bear the highest risk.
(c) Equity shareholders have the right to control the management of the
company.
(d) The equity shareholders get benefit in two ways, yearly dividend and
appreciation in the value of their investment.
(b) Equity shareholders are scattered and unorganised, and hence they
are unable to exercise any effective control over the affairs of the
company.
(c) Equity shareholders bear the highest degree of risk of the company.
(d) Market price of equity shares fluctuate very widely which, in most
occasions, erode the value of investment.
(e) Issue of fresh shares reduces the earnings of existing shareholders.
(a) Cost of equity is the highest among all the sources of finance.
(b) Payment of dividend on equity shares is not tax deductible
expenditure.
1. New Issue:
A company issues a prospectus inviting the general public to subscribe
its shares. Generally, in case of new issues, money is collected by the
company in more than one instalment— known as allotment and calls.
The prospectus contains details regarding the date of payment and
amount of money payable on such allotment and calls. A company can
offer to the public up to its authorised capital. Right issue requires the
filing of prospectus with the Registrar of Companies and with the
Securities and Exchange Board of India (SEBI) through eligible
registered merchant bankers.
2. Bonus Issue:
Bonus in the general sense means getting something extra in addition to
normal. In business, bonus shares are the shares issued free of cost, by
a company to its existing shareholders. As per SEBI guidelines, if a
company has sufficient profits/reserves it can issue bonus shares to its
existing shareholders in proportion to the number of equity shares held
out of accumulated profits/ reserves in order to capitalise the
profit/reserves. Bonus shares can be issued only if the Articles of
Association of the company permits it to do so.
From the company’s point of view, as bonus issues do not involve any
outflow of cash, it will not affect the liquidity position of the company.
Shareholders, on the other hand, get bonus shares free of cost; their
stake in the company increases.
If a shareholder fails to exercise his rights within the stipulated time, his
wealth will decline. The company loses cash as shares are issued at
concessional rate.
REFERENCE
https://www.icsi.edu/media/portals/0/SHARE%20CAPITAL%20AND%20DEBENTURES
https://www.toppr.com/guides/business-laws/companies-act-2013/types-of-shares/
https://blog.ipleaders.in/what-is-share/
https://www.mca.gov.in/SearchableActs/Section54.htm
https://www.bsamrishindia.com/sweat-equity-shares-under-companies-act-2013/