Share Capital

Classification of company Securities

A. Shares
B. Debentures

A. Shares

The capital of the company is divided into a number of

indivisible units of a fixed amount. These units are called
shares.

S. 2(84) : Share is

a) Share in share capital of a company

b) Includes stock

Commissioner of Income Tax v. Standard Vacuum Oil

Co. (1966) Comp.LJ 187 [Meaning]

“A share is not a sum of money : it represents an interest

measured by a sum of money and made up of diverse

rights contained in the contract evidenced by the articles
of association of the Company.”

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 Vishwanathan v. East India Distilleries (1957) 27
Comp.Cas. 175 [Nature]

“A share is undoubtedly movable property, but it is not

movable property in the same way in which a bolt of cloth
or bag of wheat is movable Property. … But a share in a
company belongs to a totally different category of property.
It is incorporeal in its nature, and it consists merely of a
bundle of rights and obligations.”

Kinds of Share Capital

S.43. The share capital of a company limited by shares is of

two kinds:

(a) equity share capital

(b) preference share capital

(a) equity share capital

1. Equity or Ordinary capital is further divided into

(i) with voting rights; or

(ii) with differential rights as to dividend, voting or otherwise

in accordance with such rules as may be prescribed or
Equity shares with differential rights as to dividend (DVR)

Explanation to s.43

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(i) "equity share capital means all share capital which is not
preference share capital

(b) preference share capital

(ii) "preference share capital means that part of the issued

share capital of the company which carries a preferential
right regarding

(a) payment of dividend

(b) repayment, in the case of a winding up or repayment of

capital

"Preference share capital is further divided into :

a. Cumulative or non-Cumulative

b. Participating and non-participating

c. Redeemable or Irredeemable S.55

d. Convertible and non-convertible

DVR (issue of share capital with differential voting Rights)

Companies (Share capital and debentures) Rules, 2014 ,

1. Shall not exceed 26 % of total post issued paid up

equity
2. Profit three financial years preceding such issue

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 3. No conversion to equity capital
4. Issue permission under Article of Association
5. Approval by shareholder in general meeting ordinary
Resolution
6. No default in annual return
7. No default in addressing investors Grievances
8. No failure to repay deposits or interest or redeem
debenture or Pay dividend or pay loan (provided that a
company may issue equity shares with differential
rights upon expiry of five years from its end of financial
year in which such a default was made good )
9. No conviction under SEBI Act, 1992, SCRA, 1956,
FEMA, 1999 & RBI Act
10. Entitle to bonus & right issue

Issue of Share at Discount

(S. 53)

A company shall not issue shares at a discount. Any share

issued by a company at a discount price shall be void.

1. Exceptions

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 I. 53(2A) Company may issue shares at a discount
to its creditors when its debt is converted into
shares in pursuance of debt restructuring
Scheme.
II. Sweat equity Share

Meaning

2(88) "sweat equity shares" means

such equity shares as are issued by a company to its

directors or employees at a discount or for consideration,
other than cash, for providing their know-how or making
available rights in the nature of intellectual property rights
or value additions, by whatever name called;

Issue of Share at Premium

(S. 52)

Allotment of Share

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 Meaning

Sri Gopal & Co. v Calcutta Stock Exchange Association

Ltd. AIR (1964) SC 250

“'allotment' means the appropriation out of the previously

unappropriated capital of a company, of a certain number of

shares to a person.”

Rules

1. Allotment against Application S. 2(55) (ii)

2. Registration of Prospectus S. 26
3. Application Money S. 39
4. Separate Bank Account S. 40
5. Permission to deal on Stock Exchange S.40

6. Minimum subscription S.39

The Securities & Exchange Board of India v. A.P.L.
Industries Ltd. (2013) 199 DLT 137
7. Return of application money S.39
8. Return of Allotment S.39

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 Transfer

S. 44 –Rule regarding Transfer

44. The shares or debentures or other interest of any

member in a company shall be movable property
transferable in the manner provided by the articles of the
company.

Registration of the Transfer S.56

1. Transferor and transferee may apply for the

registration of transfer of share

And Instruments of transfer Must be:

• Duly stamped

• Executed by both

• Name, address and occupation (both)

• Accompanied by certificate or Letter of allotment

2. Refusal of Registration S. 58
Grounds

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 A. Not fully paid
B. Share having lien
C. Not in form as given in S.56
D. Not accompanied by certificate of share
E. Not in respect of same class of shares
Who may refuse?

Board of director, but cannot act malafidely

Bajaj Auto Ltd. v N.K Firodia AIR 1971 SC 875

“ Article 52 of the appellant company provided that the

Directors might at their absolute and uncontrolled
discretion decline to register any transfer of shares.
Discretion does not mean a bare affirmation or negation of
a proposal. Discretion implies just and proper consideration
of the proposal in the facts and circumstances of the case.
In the exercise of that discretion the Directors will act for the
paramount interest of the company and for the general in-
terest of the shareholders because the Directors are in a
fiduciary position both towards the company and towards
every shareholder. The Directors are therefore required to
act bona fide and not arbitrarily and not for any collateral
motive…”

3. Appeal Against Refusal S.58

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 Transmission S.56

Transfer by operation of Law

Difference between transmission and transfer

Transfer Transmission

Voluntary Act. Operation of Law.

Instruments of transfer not required.

executed

Normal method of Takes place on death or

transferring ownership of insolvency.
share.

Forfeiture

Meaning

A. Depriving a person of share as a penalty .

B. Cannot exercised unless articles confers right on
directors
Rules

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 1. When forfeited ?

Non-payment of Any Call or Instalment of Call

2. Notice to be served (contents)

a. The date of payment with interest (14 days
from the day of notice)
b. In case of non-payment share would be
forfeited
3. Forfeiture if notice not complied with (Board
Resolution)
4. Effects

Cease will be member but remain liable to company to pay

all money due to company.

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