INTRODUCTION

MEANING:

A company owned capital is split into a large number of equal parts or units, each
such part or unit being called a share. This unit of capital of fixed value is known
as nominal or face value (value mention in application).

A share in a company is one of the units into which the total capital of the
company is divided.

E.g. If the capital of the company is Rs.10, 000, it is divided into 1,000 units of
Rs.10 each. Each unit of Rs.10 shall be called a share of the company.

DEFINITION:

Section 2(46) of the Indian Company’s Act, 1956, defines shares as “a share is a
share in the share capital of the company” and includes stock, except where a
distribution between stock or share is expressed or implied. A share is a fractional
part of the capital of the company which forms the basis of ownership of certain
rights and interest of a subscriber in the company.

The person who purchases shares of a company is called a share holder of the
company. The title of a member to a share is evidenced by the share certificate
issued by the company under its common seal. A share holder is given a part or
share of the net profit of the company called dividend.

The rate of dividend is not fixed in equity shares; it depends upon the annual
profits of the company. Whereas, in preference shares the rate of dividend is fixed
at the time of issue and no changes can be made in this rate in due course till the
repayment of capital.

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TYPES OF SHARES

A company can issue different kinds of shares depending on its own requirements
as well as requirements of different types of investors. In brief shares are of two
types (1) Equity Shares.

(2) Preference Shares.

The following chart gives the classification of different classes of shares:

SHARES

EQUITY SHARES PREFERENCE

SHARES

1. EQUITY SHARES:

According to section 85(2) of Indian companies act, 1956 shares which are
not preference shares are equity shares or ordinary shares. These shares are
entitled to receive the entire surplus after he preference shares are paid a
fixed rate of dividend. If no profits are left after paying fixed rate of
dividend, these share holders get no dividend. Same is in the case with
regard to the return of capital on winding up of the company. That is why in
financial terminology the share capital raised through equity shares is called
risk capital or venture capital.
2. PREFERENCE SHARES:

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 Such shares enjoy preferential rights:
[A] As to the payment of dividend at a fixed rate during the life of the
company, and
[b] As to return of capital on winding of the company.
Thus preference share holders enjoy certain priorities over equity share
holder. They are entitled to receive a dividend at a fix rate out of the profit of
the company. However, preference share holder voting rights are summoned
restrictive.

KINDS OF PREFERENCE SHARES:

There may be different kinds of preference share depending upon the terms of
issue which are either defined in the articles of association or prospectus or
Memorandum of Association of the company. The right with regard to payment of
dividend and voting differs in every case.

1. Cumulative Preference Shares.

2. Non-Cumulative Shares.

3. Participating presence shares.

4. Non-participating shares.

5. Convertible Preference Shares.

6. Redeemable Preference Shares.

7. Non-participating preference Shares.

8. Irredeemable Preference Shares.

ISSUE OF SHARES

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Share capital is the capital raised by a company by the issue of shares. Share
capital can be raised by the company either at the time of its formation or later on
for the purpose of meeting the requirements of its expansion. While private
company may raise its share capital from a small number of persons known to the
promoters, without issuing prospectus, a public company is required to issue shares
to the public through its prospectus and takes steps to allot shares. Prospectus is a
document which gives all material and essential information about the affairs of
the company, shows the future prospectus of the company and thereby induces the
public to purchase shares of the company. It is an official invitation to the public to
subscribe to the shares of the company.

STAGES INVOLVED IN ISSUING OF SHARES

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 1) PRELIMINARY STAGE.
a. Preliminary preparations.
b. Listing of Securities.
c. Underwriting Arrangements of Brokers.
2) APPLICATION STAGE.
a. Appointing Bankers to the issue.
b. Approval and Filling of Prospectus.
c. Public Issue of Prospectus and Application forms.
d. Receipt of Application forms through Banks.
e. Scrutiny and Sorting of Application forms.
f. Closer of Application List.
g. Preparation of Application and Allotment Sheets.
3) ALLOTMENT STAGE.
a. Determination of Allotment Policy.
b. Recording Shares Allotted in ‘application and allotment sheets’.
c. Passing Resolution approving Allotment.
d. Sending Letters of Allotment or Letters of regret.
e. Recording Allotment money received.
f. Filing Returns of Allotment.
g. Preparation of Register of Members.

4) CALLS ON SHARES.
a. A Resolution in Board Meeting.
b. A Resolution to close Register of Members.
c. Preparation of Call List.
d. Preparing and Issue of Call Letters.
e. Receipt of calls.
f. Sending the reminders for calls in arrears.

Let us discuss these stages in brief:

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  PRELIMINARY STAGE:

This stage involve following activities:-

1) Preliminary Decisions: Before the shares are issued the promoters or

directors have to take decisions regarding
[a] The amount of capital to be raised by the issue of shares.
[b] Types of shares to be issued.
[c] The number of shares in each category and their face value.
[d] Time of issuing shares.

2) Listing of Securities on Stock Exchange: A stock exchange is an

organized market where shares, stocks and debentures are bought and sold
quickly and efficiently. But in a stock exchange or share bazaar the
securities of only those companies are traded which have listed their
securities in the official trade list maintained by a stock exchange. If a
company wishes that its securities should be bought and sold in stock
exchange, it should make an application to the stock exchange, follow the
prescribed listing procedure and fulfill the guidelines for listing.

3) Underwriting Agreements: A public company proceed with the allotment

of shares unless it gets the minimum subscription from the public. The
minimum subscription is the amount which, in the opinion of the directors,
must be raised before the allotment work is undertaken. To ensure that
sufficient number of shares would be subscribed for by the public, a public
company generally enters into an underwriting agreement. The underwriting
agreement is an agreement under which one or more individuals or
institutions (called underwriters) agree to take up the whole or a certain
portion of the unsubscribed shares or debentures of a company for a certain
remuneration called underwriting commission.

 APPLICATION STAGE:

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The application stage is concerned with the work of receiving applications of
shares from the investing public. The work of receiving applications of shares
consists of the following main steps:-

1) Appointment of Bankers: When a public company decides to raise

capital from the public through the issues of prospectus, it has to arrange
for the appointment of bakers who would be entrusted with the work of
distributing the application from accompanied by the prospectus and
receiving applications along with application money from the intending
investors.
2) Approval and Filling of Prospectus: The draft copy of the prospectus
should be approved by the directors and a copy of the same must be filed
with the Registrar.
3) Issue of Prospectus: The prospectus inviting the public to subscribe to
the shares of the company must be issued to the public within 90days
from the date of its delivery to the registrar. The copies of the prospectus
printed on the reverse side of application form for shares are distributed
through bankers, brokers, underwriters and other agencies.
4) Receiving of application: The investors forward the application forms
duly or through the authorized brokers or agents, along with necessary
application money. The money payable on application for each share
should not be less than 5 per cent of the face value of shares. On receipt
of the applications, the ban issues receipts for the money to the applicants
in the ‘Receipt Form’ appended with each application form. Thereafter,
bank enters the details of the application and the application money
separate sheets called bankers’ list and sends the same to the company
along with the applications.
5) Scrutiny of Applications: On receipt of the applications forms from the
bank, the company proceeds to sort the applications for different kinds of
shares and make a scrutiny of the same. Incomplete and irregular forms
are rejected.
6) Recording of the Applications: The application list is used to record the
details of each of the application sorted out and are entered on application
and allotment sheets. Then the entries on those sheets are checked with

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 the bankers’ list, bank pass book. These sheets are either in loose leaf or
in bound book form.

SECRETARIAL DUTIES REGARD TO THE APPLICATION OF SHARES

The secretary of the company has to perform number of duties in connection with
the receipt of application of shares. These duties are as under:

1) To convene board meeting to take preliminary decisions with regard to

the issues of shares.
2) To ensure that the ‘GUIDELINES FOR DISCLOSURE AND
INVESTMENT PROTECTION’ issued by SEBI regarding the issue of
shares to the public are duly complied with.
3) To arrange for the opening of bank accounts especially for the issues of
shares.
4) To draft the prospectus and application forms.
5) To convene and conduct a board meeting to approve underwriting
arrangements, appointments of brokers, draft prospectus and application
forms.
6) To arrange for the printing of the prospectus and application forms.
7) To file the prospectus with the registrar.
8) To issue the prospectus to the public through proper advertisement in
different news media within 90days after filing it with the registrar and
making the forms available to the public.
9) To forward the share applications received at the head office to the
banker in time and also to prepare application and allotment sheet.

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  ALLOTMENT OF SHARES:

Meaning of allotment of shares: “Allotment of shares is the appropriation out of

the previous inappropriate capital of the company of a certain number of shares to
a person”. Allotment of shares means a distribution of shares of a company to
applicants by a resolution of the board of directors of a company.

Essential conditions of a valid allotment: The

essential conditions for a valid allotment may be divided into two categories,
namely

(A) General Provision under the Indian Contract Act 1872 – governing the validity
of the allotment of shares

(B) Special provision of the Companies Act governing the regularity of allotment
of shares. Let us take a brief review of these conditions:

When the company allots the shares to the applicants, it amounts to a contract
between the company and the applicant. Therefore, general principles of Contract
Act are applicable to the purchase of shares from the company. Accordingly, the
conditions of a valid allotment are:-

1) The allotment must be made with proper authority: The proper authority
for allotment of shares is board of directors. The allotment must be made by
a resolution passed by the board of directors at a properly constituted board
meeting.
a. Allotment against application only: For a valid allotment contract
there should be an offer by the investor for purchasing shares.
Allotment to be valid must be made against a written application by a
person or a concern.
2) The allotment must be absolute and unconditional: The allotment must
be made on the terms stated in the application of forms.
3) The allotment must be made within a reasonable time: The allotment of
shares to the application must be made within a reasonable time. If there is
undue delay in the allotment, the application may refuse to take shares.

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PROCEDURE FOR ALLOTMENT OF SHARES:

The allotment work involves the following steps.

1) Meeting for allotment of shares and allotment policy: When the

conditions of valid allotment are fulfilled, the directors proceed with the
allotment of shares. Secretary calls a meeting of the board of directors
and places before them the “The Application and Allotment lists”.
2) Recording shares allotted in “Application and Allotment sheets: The
sub-committee submits its report relating to the scheme of allotment. The
board of directors will confirm it with or without necessary changes.
Accordingly the secretary shall enter the number of shares to be allotted
against the name of each successful applicant in “Share Application and
Allotment List”. The chairman of the board initials every sheet of the
register and put signature at the end of the list.
3) Passing a resolution at board meeting approving the allotment: Then
the allotment of shares made is approved by the board of directors by
passing a resolution to that effect in the board meeting. The board
meeting resolution also authorizes the secretary to send letters of
allotment and letters of regret, as the case may be, to the applicants.
4) Filling the return of allotment with the registrar: After completing the
allotment, a company has to file with the registrar a statement called
return on allotment, within 30days of allotment along with prescribed
fees. The return give the following particulars:
a. Number and nominal amount of the shares allotted, in the various
categories of shares.
b. Name, address, occupations and details of allottees.
c. Amount paid and payable on each share.
d. Particulars of shares allotted for consideration other than cash and
consideration for which they have been issued.

5) Recording allotment money: On receipt of Letters of Allotment, the

allottees remit the allotment money through bank. The banker credits the
amount of the allotment account and hands over the allotment slips
collected from the allottees to the bank. The company, on receipts of the

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 allotment slip from the bank, makes relevant entries in the ‘Application
and Allotment List’ against the names of allottees.
6) Preparation of register of members: After the allotment is over, from
the application and allotment list, which is a provisional record the
register of members is prepared by the secretary.
7) Preparation and issue of shares certificate: Finally share certificate are
prepared. They are duly sealed and signed by at least two directors and
sent to the allottees who will be the members, within the three months of
allotment.

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 CALL ON SHARES :

MEANING: When shares are issued, the company usually collects only a
part of the face value of share on application and allotment. The balance
amount is collected from the shareholder has and when needed in
installments. Such installments are called calls. During the life time of the
company, the board of director and exercise the power of making a call: in
respect of unpaid amount on shares while at the time of widening up, the
liquidator can exercise such power.
PROCEDURE FOR MAKING CALL:

The procedure for making call is generally given in articles of company

however, the following usual steps are involves in making call:

1) A resolution in board meeting: when the director decides to raise

additional shares capital through call, they pass a resolution in board
meeting for making call specifying the amount of call per shares, place of
payment and the date before which the payment shall be made.
2) A resolution to close register of member: The board also passes other
resolution for closing the register of member for a certain period before
making a call. During this period on transfer of shares will be affected.
3) Preparation of call list: The secretary then prepared a call list on the basis
of the register of member. The list is list of the persons on who call notice
should be server. It continue following details

a. Name and of the members

b. Name of shares held by it member

c. Amount due on calls

d. Amount paid in advance, if any

e. Balance due for each member

f. Folio member in register of member as a reference.

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 4) Preparing and issues of call letters: After preparing the call list, the
secretary proceeds to prepared and issues call letter (also called call
notice).The call letter consists of three parts viz. the call letter proper, a
receipt of the call money and the call slip with the perforation in between.
The call letter shall specify the amount of call money due on shares held by
a member, the date and place of payment.

5) Receipts of call: On receipt of call letters the member remit the call amount
to the company banker along with the call letters. The bankers after revering
the payment, returns the call receipts duly signed to the member and keeps
the enclosed call slip with himself.. The banker then forward the call slips to
the company after noting the details on it. On recipes of call slips the
secretary arranges to enter the details of calls receipts in the call list on the
basis of these call slips.

6) Sending the reminder for call in arrears: After the expiry of last date for
payment of call, the secretary prepared the list of member who have not paid
calls and place the same before the board. The board may extend the time
limit for paying call with or without interest the secretary then arranges to
send reminder to such defaulting member requesting them to remit the cal,
money on or before a specified date. Inspire of reminder, if some member do
not pay the call money, the company may proceed for the forfeiture of such
share as per the procedure given in articles of association.

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 SHARE CERTIFICATE

MEANING: A share a certificate is a document of titles to the shares issued by a

company under its common seal. It indi8cates the number of shares held by a
member and the amount paid on each share. It is prime facie evidence of the title to
the member to the share specified therein. It consists of three parts namely:

1) The certificate proper.

2) The counter foil.

3) The receipt to be signed by the shareho9lder on receiving the share.

Certificate: A share certificate contains the following details:-

a. Name of the company.

b. Serial number of the certificate.

c. Number and kinds of share held

d. Distinctive number of shares held.

e. Authorized capital of the company.

f. Name and address of the holder or holders.

g. Face value and the amount paid on each share.

h. Date of issue of the share certificate.

i. Seal of the company.

j. Signature of the directors of the company and the secretary.

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 NAMES OF NSE COMPANIES

ABB Ltd. Electrical equipment

ACC Ltd. Cement and cement products
Abuja Cements Ltd. Cement and Cement Products
Bajaj Auto Ltd. Automobiles - 2 and 3 Wheelers
Bharat Heavy Electricals Ltd. Electrical Equipment
Bharat Petroleum Corporation Ltd. Refineries
Bharti Airtel Ltd. Telecommunication - Services
Cipla Ltd. Pharmaceuticals
Dr. Reddy's Laboratories Ltd. Pharmaceuticals
GAIL (India) Ltd. Gas
GlaxoSmithKline Pharmaceuticals Ltd. Pharmaceuticals
Grasim Industries Ltd. Cement and Cement Products
HCL Technologies Ltd. Computers - Software
HDFC Bank Ltd. Banks
Hero Honda Motors Ltd. Automobiles - 2 and 3 Wheelers
Hindalco Industries Ltd. Aluminium
Hindustan Petroleum Corporation Ltd. Refineries
Hindustan Unilever Ltd. Diversified
Housing Development Finance Corporation Ltd. Finance - Housing
I T C Ltd. Cigarettes
ICICI Bank Ltd. Banks
Infosys Technologies Ltd. Computers - Software
Larsen & Toubro Ltd. Engineering
Mahanagar Telephone Nigam Ltd. Telecommunication - Services
Mahindra & Mahindra Ltd. Automobiles - 4 wheelers
Maruti Udyog Ltd. Automobiles - 4 wheelers
NTPC Ltd. Power
National Aluminium Co. Ltd. Aluminium
Oil & Natural Gas Corporation Ltd. Oil Exploration/Production
Punjab National Bank Banks
Ranbaxy Laboratories Ltd. Pharmaceuticals
Reliance Communications Ltd. Telecommunication - Services
Reliance Energy Ltd. Power

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Reliance Industries Ltd. Refineries
Reliance Petroleum Ltd. Refineries
Satyam Computer Services Ltd. Computers - Software
Siemens Ltd. Electrical Equipment
State Bank of India Banks
Steel Authority of India Ltd. Steel and Steel Products
Sterlite Industries (India) Ltd. Metals
Sun Pharmaceutical Industries Ltd. Pharmaceuticals
Suzlon Energy Ltd. Electrical Equipment
Tata Consultancy Services Ltd. Computers - Software
Tata Motors Ltd. Automobiles - 4 Wheelers
Tata Power Co. Ltd. Power
Tata Steel Ltd. Steel and Steel Products
Unitech Ltd. Construction
Videsh Sanchar Nigam Ltd. Telecommunication - Services
Wipro Ltd. Computers - Software
Zee Entertainment Enterprises Ltd. Media & Entertainment

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 NAMES OF BSE COMPANIES

ACC Ltd. Cement and cement products

Abuja Cements Ltd. Cement and Cement Products
Bajaj Auto Ltd. Automobiles - 2 and 3 Wheelers
Bharat Heavy Electricals Ltd. Electrical Equipment
Bharti Airtel Ltd. Telecommunication - Services
Cipla Ltd. Pharmaceuticals
DLF Ltd. Developers/Construction
Grasim Industries Ltd. Diversified
Housing Development Finance Corporation Ltd. Finance - Housing
HDFC Bank Ltd. Banks
Hindalco Industries Ltd. Aluminium
Hindustan Unilever Ltd. FMCG
ICICI Bank Ltd. Banks
Infosys Technologies Ltd. Information Technology
ITC Ltd. FMCG
Larsen & Toubro Ltd. Engineering
Mahindra & Mahindra Ltd. Automobiles - 4 wheelers
Maruti Udyog Ltd. Automobiles - 4 wheelers
NTPC Ltd. Power
Oil & Natural Gas Corporation Ltd. Oil Exploration/Production
Ranbaxy Laboratories Ltd. Pharmaceuticals
Reliance Communications Limited Telecom
Reliance Energy Ltd. Power
Reliance Industries Ltd. Refineries
Satyam Computer Services Ltd. Computers - Software
State Bank of India Banks
Tata Consultancy Services Ltd. Computers - Software
Tata Motors Ltd. Automobiles - 4 Wheelers
Wipro Ltd. Computers - Software

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TOTAL NO. OF COMPANIES THAT ARE UNDER BSE (2451).

 Agriculture (36)
 Consumer Products (174)
 Energy (276)
 Fashion (89)
 Financial Services (317)
 Food & Beverage (133)
 Hospitality (28)
 Insurance (26)
 Internet (50)
 Manufacturing (321)
 Miscellaneous (113)
 Media & Entertainment (106)
 Parma & Healthcare (274)
 Real Estate (105)
 Retail (154)
 Services (222)
 Technology (380)
 Telecommunications (169)
 Transportation (127)

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 RATE OF CHANGE OF SOME FAMOUS BSE COMPANIES

TERMS RELATING TO STOCK EXCHANGE TRANSACTIONS

1. Group A shares: These are the listed equity shares of large and well
established companies having broad investor base. These shares are actively
traded and for these shares the facility for carrying forward a transaction
from one accounting period to another is available. Naturally these shares
attract a lot of speculative multiples. These facilities are not availed for
group B shares. However shares can be moved from Group B to Group A
and vice versa depending on criteria for shifting.
2. Group B Shares: Are those listed shares which do not follow the criteria
prescribed for Group Shares. Group B are again divided into B1, B shares on
BSE. B1 shares represent well traded scrip among B group and they have
weekly settlement.

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