ISSUE OF SHARES AND DEBENTURES

Issue of shares
Meaning of share and share capital: -
The capital of the company is divided into units of small denominations and each unit is termed
as a share. The capital raised by the issue of share is known as share capital.
According to Section 43 of the Companies Act 2013, a company can issue only 2 types of
shares i.e. Equity shares (ordinary shares) and preference shares
1. Equity Shares:
• A share which is not a preference share is an equity share. It means shares which
do not enjoy preferential right in the payment of dividend or repayment of
capital at the time of winding up of a company are known as equity shares.
• The holders of those shares get their dividend only after the payment of dividend
to preference shareholders.
• They do not get a fixed rate of dividend.
• Equity shareholders have voting rights on all matters.

2. Preference Shares:
• They are those shares that have preferential rights over the equity shares in
respect of dividend and in respect of repayment of capital at the time of winding
up of a company.
• The holders of these shares get dividend at a fixed rate.
• They can exercise their voting rights only on matters affecting their interests.

Distinguish between equity and preference share

Point Equity Share
1. Dividend Equity shareholders get
dividend after payment of
preference shareholders.
2. Voting rights Equity shareholders have
voting rights on all matters.
3. Repayment of capital On winding up of company,
equity share capital is paid
last.
Preference Share
Preference shareholder get
dividend before equity
shareholders.
Preference shareholders
exercise their voting rights
only on matter affecting
their interest.
On winding up of a
company, preference share
capital is paid before equity
share capital.

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 Authorised
Share Capital

Unissused
Issued Capital
Capital

Subscribed Unsubscribed
Capital Capital

Called up Uncalled up
Capital Capital

Paid up Calls in Unreserved Reserved

Capital arrears Capital Capital

Different names of share capital

1. Authorised/ Registered/ Nominal capital
This is the maximum capital which a company is authorized to raise from the public
by issue of shares during its life time.

2. Issued Capital
Issued Capital is that part of authorized capital which is offered by the company to the
public for subscription.

3. Subscribed Capital
Subscribed Capital is that part of issued capital which is actually taken up by the
public. Subscribed capital maybe either full subscription, over subscription or under
subscription.

4. Called up Capital
Called up capital is that portion of the subscribed capital which is called up by the
company.

5. Paid up Capital
Paid up capital is that portion of called up capital which is actually paid up the
shareholders. The unpaid amount of called up capital is known as calls in arrears.

6. Reserve Capital
It is that part of uncalled capital which shall not be called up by the company except
in the event of winding up of the company by a special resolution.

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7. Capital Reserve
Capital reserve is a reserve which is created out of capital profit, i.e. the profits earned
on sale of fixed assets, premium on issue shares or debentures, profit on reissue of
shares, etc. and it is not readily available for distribution as dividend among
shareholders.

Issue of shares
The company can issue shares in any other following ways

1. Private Placement of shares

Instead of issuing shares to the general public, the company can issue the shares to a
selected group like promoters, financial institutions, mutual fund, etc. by passing he
special resolution to this effect.

2. Public Subscription of shares

It means shares are offered by a company to general public for their subscription.
The following are the steps
a. Issue of prospectus
b. Receipts of application (which cannot be less than 25% of the nominal value of
shares)
c. Allotment of shares (within prescribed time in consultation with the SEBI)
d. Calls on shares (one or more installement)

Types of issue of shares

1. Issue of shares at par
When shares are issued for an amount equal to the face value of the share they are
said to be issued at par.
For example:- Shares of ₹100 each are issued for ₹ 100 only

2. Issue of shares at premium

When shares are issued for the value more than its face value they are said to be
issued at premium.
For example:- If shares of ₹100 is issued at ₹ 120 that means shares is issued at
premium of ₹ 20 per share.

3. Issue of shares at discount

When shares are issued for the value less than its face value they are said to be
issued at discount.
For example:- If shares of ₹ 100 is issued at ₹ 90 it is said to be issued at a discount
of ₹ 10 per share.

Section 53 of Companies Act 2013, companies would no longer be permitted to

issue its shares at discount.