1) What Are Preference Shares?

Preference shares, more commonly referred to as preferred stock, are shares

of a company’s stock with dividends that are paid out to shareholders before
common stock dividends are issued. If the company enters bankruptcy,
preferred stockholders are entitled to be paid from company assets before
common stockholders.

Most preference shares have a fixed dividend, while common stocks

generally do not. Preferred stock shareholders also typically do not hold any
voting rights, but common shareholders usually do.

2) Debenture.
A debenture is a type of long-term business debt not secured by
any collateral. It is a funding option for companies with solid finances that
want to avoid issuing shares and diluting their equity. Debentures can also be
useful for companies that don’t want to tie up assets or who lack collateral for
a traditional loan. A debenture is a type of long-term business debt not
secured by any collateral. It is a funding option for companies with solid
finances that want to avoid issuing shares and diluting their equity.
Debentures can also be useful for companies that don’t want to tie up assets
or who lack collateral for a traditional loan.

3) Types of Preference Shares.

There are nine different types of preference shares given below:

 Convertible Preference Shares

 Non-Convertible Preference Shares
 Redeemable Preference Shares
 Non-Redeemable Preference Shares
 Participating Preference Shares
 Non-Participating Preference Shares
 Cumulative Preference Shares
 Non-Cumulative Preference Shares
 Adjustable Preference Shares
 4) Types of Debentures
 Convertible Debentures.
 Non-Convertible Debentures.
 Registered Debentures.
 Unregistered Debentures.
 Redeemable Debentures.
 Irredeemable Debentures.
 Incentivized Debentures.

5) Concept of Calls in Arrears

Calls in arrears are the amount that is called with respect to sharing and if not paid
before the due date. The call money can also be called allotment money, and the
company can call it. If any failure or default arises to send the call money, it may be
known as the calls in arrears. For the calls in arrears, a separate account should be
opened and maintained.

The account applied in the call of arrears can be reflected in the share capital of the
balance sheet. It used to be shown as the deducted amount of subscribed but not fully
paid under-subscribed capital

6)Calls in advance
Call in advance are the advanced payment or excess payment made to the called
due is known as 'calls in advance' which can not be shown by the company as capital
unless such is due from the shareholders. A group of people makes a company that
contributes money to their common purpose.

7)

Shareholders Debenture holders

Shareholders are the owners of the
company.
Shareholders actively participate in the
decision making process of the company.
Debenture holders are merely lenders to
the company and are considered to be
creditors.
Debenture holders cannot participate in
the decision making process.
Shareholders are entitled to receive
dividends, which is basically a share in the
profits of the company.
Despite generating profits, a company may
choose not to pay dividends to its
shareholders.
Since they have lent money to the
company, debenture holders are entitled
to receive interest.
Whether it generates profits or not, a
company is obligated to pay interest to its
debenture holders.

LONG Questions:-

1) What Are Preference Shares?

Preference shares commonly known as preferred stocks, are those shares
that enable shareholders to receive dividends announced by the company
before receiving to the equity shareholders.
If the company has decided to pay out its dividends to investors, preference
shareholders are the first to receive payouts from the company.
Preference shares are released to raise capital for the company, which is
known as preference share capital. If the company is going through a loss
and winding up, the last payments will be made to preference shareholders
before paying to equity shareholders.
Preference shares that can be easily converted into equity shares are
known as convertible preference shares. Some preference shares also
receive arrears of dividends, which are called cumulative preference shares.
In India, preference shares should be redeemed within 20 years of
issuance, and these types of preference shares are called redeemable
preference shares.

As per the Companies Act 2013, companies do not have any right to issue
irredeemable preference shares in India.

Types of Preference Shares

There are nine different types of preference shares given below:

 Convertible Preference Shares

Convertible preference shares are those shares that can be easily

converted into equity shares.

 Non-Convertible Preference Shares

Non-Convertible preference shares are those shares that cannot be

converted into equity shares.

 Redeemable Preference Shares

Redeemable preference shares are those shares that can be

repurchased or redeemed by the issuing company at a fixed rate and
date. These types of shares help the company by providing a cushion
during times of inflation.

 Non-Redeemable Preference Shares

Non-redeemable preference shares are those shares that cannot be

redeemed or repurchased by the issuing company at a fixed date. Non-
redeemable preference shares help companies by acting as a lifesaver
during times of inflation.

 Participating Preference Shares

Participating preference shares help shareholders demand a part in the

company’s surplus profit at the time of the company’s liquidation after the
dividends have been paid to other shareholders.
However, these shareholders receive fixed dividends and get part of the
surplus profit of the company along with equity shareholders.

 Non-Participating Preference Shares

  These shares do not benefit the shareholders the additional option of
earning dividends from the surplus profits earned by the company, but
they receive fixed dividends offered by the company.

 Cumulative Preference Shares

Cumulative preference shares are those type of shares that gives

shareholders the right to enjoy cumulative dividend payout by the
company even if they are not making any profit.
These dividends will be counted as arrears in years when the company is
not earning profit and will be paid on a cumulative basis the next year
when the business generates profits.

 Non - Cumulative Preference Shares

Non - Cumulative Preference Shares do not collect dividends in the form

of arrears. In the case of these types of shares, the dividend payout takes
place from the profits made by the company in the current year.
So if a company does not make any profit in a single year, then the
shareholders will not receive any dividends for that year. Also, they
cannot claim dividends in any future profit or year.

 Adjustable Preference Shares

In the case of adjustable preference shares, the dividend rate is not fixed
and is influenced by current market rates.

What Is a Company?
A company is a legal entity formed by a group of individuals to engage in and
operate a business—commercial or industrial—enterprise. A company may
be organized in various ways for tax and financial liability purposes
depending on the corporate law of its jurisdiction.
The line of business the company is in will generally determine which
business structure it chooses such as a partnership, proprietorship,
or corporation. These structures also denote the ownership structure of the
company.

 Companies limited by shares: It refers to a company in which the liability of its

partners is limited to the amount specified in the partnership agreement. However, any
unpaid amount on the share may be called upon to settle the liability. Liability against
partners can be enforced during the existence of the company even during liquidation. It
is important to note that no amount can be claimed from the members after the shares
have been fully repaid.
For example- X is a shareholder who has paid 75 for a share with a face value of 100.
The company can call upon X to pay only the remaining 25 rupees and not exceed that
amount. By far the most important are limited liability companies.
 Companies limited by guarantee: In this type of company, the liability of the
partners is limited to the amount they undertake to contribute to the assets of the company
in the event of its dissolution. Simply put, the liability of the shareholders is limited by
the amount of the guarantee they give in the partnership agreement.
During the liquidation of the company, the members are placed in the position of
guarantors for the fulfillment of the company’s debt. Examples of such societies are
clubs, trade associations, research associations, etc.
 Companies with unlimited liability: It applies to those companies that do not
determine the liability of their members. Members’ liability is unlimited and their assets
can be used to satisfy the company’s debt. They may or may not have share capital.

Types of companies based on company

incorporation
Based on the establishment, companies can be divided into 2 categories.

 Statutory Companies: It applies to those companies which are incorporated by a

special Act of Parliament or State Legislature. The main objective of this type of
company is to provide a public service. Since they are established under a separate law,
the Companies Act, 2013 has limited scope for them. If there is any conflict, the Special
Act for the circumstance will prevail over the Companies Act, 2013.
 Registered Companies: Companies that are registered under the provisions of the
Companies Act, 2013 or any previous Companies Act are called registered companies.
This type of company is formed when they have received a certificate of incorporation
(ROC).
Types of companies based on the number of
members
In this category, companies can be divided into 3 parts –

 Public Companies: A public company is defined in Section 2 (71) of the

Companies Act of 2013. To establish a public company, it is necessary to have at least 7
partners. One of the special features of a public company is that there are no restrictions
on the buying and selling of shares. Section 58 stipulates that the shares of a public
company are freely transferable. If the company does not comply with the above
provisions, it will renounce the status of “private company”. To transform a public
company into a private company, it is necessary to adopt a special resolution at the
general meeting (3/4 majority).
 Private companies: A private company [Section 2(68)] refers to an association of
persons whose maximum number of members is limited to 200. A private company
cannot invite the general public to subscribe to its shares or debentures. Shares in a private
company are not freely transferable and cannot be transferred. All such restrictions must
be expressly stated in the Articles of Association (AOA). As with a public company, a
private company can change its status by passing a special resolution (3/4 majority) at
the general meeting.
 One-Person Company (OPC): According to Section 2(62) of the Companies Act
2012, a sole proprietorship is a company that has only one person as a partner or
shareholder. The board of directors must have 1 director and its only member can also
hold the role of director. In this type of company, the term “nominee” assumes the highest
importance because, after the death of the original member, the business of the company
would cease. It is therefore necessary to mention the name of the candidate when
registering such a company. It is not followed in other types of companies because they
have perpetual succession.

Types of Companies in India Based on

Residence
 Foreign companies: According to Section 2(42) of the Companies Act, 2013,
“foreign company” means any company or body corporate having its place of business
or carrying on business in India (through itself or its agent). The provisions listed in
Section 379 -393 apply to this type of company.
 Indian companies: It applies to those companies where incorporation and
registration are done in India. It is an umbrella term and almost all other types of
companies fall under it.
Other types of companies in India
 Section 8 Company: A company registered under Section 8 of the Companies Act
2013 is a Section 8 Company. It is also known as a non-profit company. The features of
this company are:
The object of the company is the promotion of commerce, art, science, sport, education,
research, welfare, religion, charity, environmental protection, or any other object;
 Any profit achieved will be used to achieve the company’s goals.
 It prohibits the payment of dividends to its members.
 A Section 8 company is exempt from using “Ltd” or “private Ltd” as a suffix
to its name.
 Government companies
 A government company is a company in which the Central Government,
State Government, or a combination holds at least 51% of the paid-up share capital.
 Small companies: According to Section 2(85) of the Companies Act 2013, “small
company” means a company other than a public company in which the following
conditions are met—


 share capital paid up not exceeding 50 lakh rupees.

 Turnover for the previous year does not exceed 2 crore rupees in the
previous year.
 Subsidiary Company: According to Section 2 sub-section 87 Companies Act of
2013, a subsidiary company is a company in which the holding company-


 Manage and control the composition of the board of directors. Control

can be determined if the holding company has the right to appoint or remove a
majority of the board members.
 Exercise control over more than half of the subsidiary’s voting rights.
 Holding companies: The definition of a holding company is given in Section 2 (46)
of the Companies Act of 2013. It is a company of which these companies are subsidiaries.
 Associated companies: According to Section 2(6) of the Companies Act 2013, an
associated company means a company in which another company has substantial
influence but is not a subsidiary of the company exercising influence. The term
“significant decision” means the power to control at least 20% of the total voting rights
or participation in the management affairs of an affiliate.
 Producer Companies: It refers to a legally recognized association of
farmers/farmers to improve their standard of living and ensure stable income and
profitability. Some conditions for Producer Company-

  Only a person working in the primary sector can be a member of such
a company.
 The company name ends with the words “Producer Company
Limited”.
 The minimum and maximum number of directors in a production
company are 5 and 15 respectively.
 Sleeping or Dormant Companies: It refers to a company that has not carried out
its business or carried out significant accounting transactions in the last 2 financial years.