CH.

4 – SHARE CAPITAL AND DEBENTURES

SECTION DESCRIPTION
SECTION 43 Kinds of share capital
SECTION 44 Nature of share or Debentures
SECTION 45 Numbering of shares
SECTION 46 Certificate of shares
SECTION 47 Voting Rights
SECTION 48 Variation of shareholders Rights
SECTION 49 Call on shares of same class to be made on uniform basis
SECTION 50 Company to accept unpaid share capital although not called up
SECTION 51 Payment of dividend in proportion to amount paid-up
SECTION 52 Application of premium received on issue of shares
SECTION 53 Prohibition of issue of shares at discount
SECTION 54 Issue of sweat equity shares
SECTION 55 Issue and redemption of preference shares
SECTION 56 Transfer and transmission of securities
SECTION 57 Punishment for personation of shareholder
SECTION 58 Refusal of registration and appeal against refusal
SECTION 59 Ratification of Register of members
SECTION 60 Publication of authorised subscribed & paid-up capital
SECTION 61 Power of limited company to alter its share capital
SECTION 62 Further issue of share capital
SECTION 63 Issue of Bonus shares
SECTION 64 Notice to be given to Registrar for alteration of share capital
SECTION 65 Unlimited company to provide for reserve share capital
SECTION 66 Reduction of share capital
SECTION 67 Restriction on purchase by company or giving of loans by it for purchase of its shares.
SECTION 68 Power of company to purchase its own securities
SECTION 69 Transfer of certain sum to capital redemption reserve account
SECTION 70 Prohibition for Buy-Back in certain circumstances
SECTION 71 Debentures
SECTION 72 Power to nominate

Share Capital & Debentures

Companies (S &D) Rules 2014
Section 2(84)
Share means share in a share capital it includes stock also.

Share Capital

Equity Share capital Preference share capital

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 (other than preference share capital) having preferential rights

Equity share Equity share

capital with capital with
normal voting differential
rights voting rights

Payment of Repayment of
dividend capital at the
time of winding up

Section 43
Equity share capital with differential rights
Rule 4 of Companies (share capital and company Rules, 2014)
1. Authorized in AOA
2. Pass “OR” – General Meeting
3. Equity shares with differential voting is exceeding 74% of post issue capital
4. Company is not defaulted in filling financial statements and annual reports in preceding 3 years (Financial
years)
5. Company is not defaulted in payment dividend, deposits, repayment of debentures and interest
redemption of preference shares
6. Company is not defaulted in the provisions of

COA FEMA SEBI SRFASI RBI IT Act

2013 1992 Act Act, 1934 1961
If defaulted – Elapsed by [5] years
7. Equity share Equity share
(Normal voting cannot be with differential
Rights) converted voting rights
8. Details of equity shares with differential voting rights is maintained in Board Report.
9. Shall maintained Register for Es-DV
10. Es – Differential voting rights shall enjoy all the rights related to bonus shares, rights shares etc.

Share Certificate
(Section 46)

 Prima Faice Evidence for ownership/transfer of shares

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 Issue of share capital

To subscribes In case of Transfer of

to MOA allotment shares

within (3) months within (2) months within (1) month

from the date from the date from the date
of incorporation of allotment of such transaction
It is authenticated by common seal of company
- Common seal is deregulated
then
- 2 Directors (one MD)
- 1 Co-Secretary & 1 Director

Company shall provide duplicate share certificate in case of lost, tear, mutilated, deface, destroy
If company offer duplicate share certificate then company shall obtain indemnity bond

Voting Rights
(Section 47)

Equity Share holder Preference share holder

 Having right to vote  Having rights to vote on matters

which efforts the rights of
on each and every
preference share holders
matter related to
co.  Having right to vote on all the
matters of the time of winding
 Voting rights are
based on  In any company failure to pay
prospectus to PSC dividend continue for (3) years then
the PSH is having right to vote like
ESH
 Right to vote on any reduction
elated to repayment (or) reduction
of capital

Variation of rights of shareholders (SH)

(Section 48)
1. Authorised in MOA/AOA

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2. If such variation is not prohibited in case power is contained in MOA/AOA
3. Consent required for valuation
Written consent from such shareholder
(Not less than 3/4 of such class)
4. Rights of dissenting shareholders
Make an application to Tribunal
(Application made by atleast 10% of such class)
5. The order of Tribunal is “Final order”
6. If variation by one class of shareholders effects the rights of any other class of shareholder then consent
of 3/4 of such other class of shareholders shall be obtained

7. The company shall file “Order of Tribunal” to ROC within 30 days

Uniform Call
(Section 49)
1. A call shall be made uniformly on all the shares falling under same class
2. Shares of same nominal value on which due amount has been paid up shall not be deemed to fall under
the same class.

Calls-in-Advance
(Section 50)
 A member may on his own, pay to the company either whole (or) part of the amount and remaining
unpaid on the shares held by even if the part of amount has not been called up. Such amount is
called calls-in- advance.
 Power to accept calls in advance is authorized in AOA
 Company is liable to pay interest on calls in advance. The rate of interest as may be prescribed (12%
p.a.)
 MCQ
1. The interest is payable whether the company earn profit or not
2. Payment of dividend in proportion to paid up share capital (Section 51)

Issue of shares at premium

(Section 52)
1. Shares are issued at more than there …….. considered as shares are issued at ……….
2. The premium amount shall be transferred to separate account named as securities account
3. Application of Securities Premium Account

Specified Co’s
which complies Other Company
Section 133

1. Issue fully paid up 1. Issue fully Bonus shares

Bonus shares 2. Buy back of shares
2. Buy back of shares 3. Shares Issue
3. Share issue expenses 4. Redemption Preference 4
(Discount, Commission) shares with premium
5. Writing off preliminary
 (expenses incurred before ………….)
Securities Premium is a capital reserve not free reserve
Issue of shares at discount
(Section 53)

Prohibited
Exception

Sweat Equity Covnersion of

Shares (Sec 54) Loan into shares

Sweat Equity Shares

(Section 54)
Definition 2(88)
Sweat Equity shares means equity shares are issued by a company to its directors or Employees at
discount or for consideration OTHER than cash
For providing there know how (or) making available rights in the nature of intellectual PROPERTY
Right (or) value additions
Conditions:
i. Sweat Equity shares a class of equity shares already issued (similar equity shares are ………issued such
class only can be issued as sweat equity shares.
ii. The issue is authorized by [Special Resolution]
The value of SR – 12 months
It specifies
i. No. of shares
ii. Current Market Price
iii. Consideration (if any)
iv. Class of directors (or) Employees

Employee

 Permanent employee who has been working in India (or) outside India

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  Working in such company or its subsidiary (or) holding company
iii. For listed companies – issue according to with SEBI guidelines
iv. For unlisted co. issue according to Central Govt. guidelines
Limits:
(i) In a Financial Year 15% of PSC
(or)
5 cr
and at any point of time – not exceeding 25% of PSC
for START UP company upto 10 years from of incorporation not exceeding 50% of PSC
Lock-in-period – 3 years
Sweat equity shares shall be pari passu with other equity shares

same as

Redemption of Preference Shares

(Section 55)
Conditions:
1. No company can issue irredeemable preference shares
2. The company can issue redeemable preference shares with a period not exceeding 20 years
3. The term of redeemable preference shares may exceeding if following conditions are satisfied:
i. The company is engaged in infrastructure projects
ii. The period of redemption not exceeding
iii. The company shall redeem a minimum 10% of preference shares every year from beginning of 21
years on wards
4. Preference Shares are redeemed only if they are fully paid
5. Authorised in AOA (issue is authorised not redemption)
6. Sources of Redemption

Out of profits available Out of fresh issue of shares

for dividend (Both Equity & preference)

1. Where the company is unable

1. Creation of capital
redeem, the preference shares then
Redemption Reserve
issue of further redeemable (or)
is mandatory if
equity shares is equivalent to amount
preference shares are
due in respect of irredeemed
redeemed out of
preference shares
profits

2. Amount to be 2. On issue of further redeemable

transferred is equal to preference shares shall be
N.V of preference shares deemed hat unredeemable
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redeemed out of profits preference shares are redeemed
(3/4th of SH’s consent is required
 Sec 133 Other Co’s
followed

P.S. are issued After

before commencement commencement
of Act

1. Out of profits 1. Out of profits

2. Securities
Premium A/c
Transfer of shares
(Section 56)

(a) Transferor Transferee submitted

to
Transfer of shares

Share Transfer
certificate deed (SHG)

…………….
 Must be dated within (60) ……………………………
 Must be stamped days of such
 Signed by Transferee transfer
 Details of transfer
(verified)

valid for (60) days

Satisfied Not satisfied

Register the Reject the

transfer within transfer by
30 days in the giving proper
name of transferee reasons

(b) Transferor submitted to [company]

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 shares are partly paid up shares are fully paid up

Co. shall communicate such Verified

information to transferee
if an objections – responded
within (2) weeks

fails to respond within Satisfied Not satisfied

2 weeks, co. deemed that
no objection with transferee
Register their Reject with
transfer proper reasons

REFUSAL AT REGISTRATION
(Section 58)

Public Company Private Company

Notice is Notice not Notice Notice

given given given not given

Within (60) days within (90) days within (30) days

from the date from the date from the date
of notice of of application of notice of
refused of for registration refusal of
registration of transfer registration

Approach to [Tribunal]

Verified & satisfied

order
 Pay damages
 Dismiss the appeal
 Give directions to the company to register transfer 10 days
 Contravention to above section
Fine – Min 1 lakh Max 5 lakhs
Imprisonment Min 1 year
Max 3 years

Transmission of shares

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 By operation of law
 Death
 Incapacity of person
 Lunacy

Share are transmitted to LEGAL REPRESENTAITON

(or)
Nominee (or) Authorised Agent
Ratification of Register of Memorandum
(Section 59)
– without sufficient cause
1. The name of any person is entered …. Register of members.
2. The name of any person is omitted the Register of Members
3. Default (or) unnecessary delay is before made in Register of Members
4. Default or unnecessary delay is being in entering the name in Register of Members fact of any person
is ceases to be a member

Then the person aggrieved (or) company may appeal to Tribunal

The Tribunal should hear the parties

May dismiss Register within 10 days

from date of order
directions given to ……
to pay damages to…..
Transfer of securities is effected by the company in contravention of Companies Act, 2013 (or)
SCRA, 1956 (or) SEBI Act, 1992 then the holder of securities, depository participant, security
Exchange Board of India shall make an application to the treatment then Tribunal orders the
company set right the contravene of law.

Default in provisions of Sec 59 – Penalty

Company Officer in Default

Min – 1 lakh Min – 1 lakh
Max – 5 lakhs Max 3 - lakhs & upto 1 year
imprisonment

FURTHER ISSUE OF SHARE CAPITAL

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 Right Shares Conversation

1. Any company propose to increase 1. Any debentures or loans, have been

its share/subscribed share capital taken from C.G
by issue of further shares
2. Such shares are offered to existing 2. If government considered necessary for
employees, existing members, any the. then such debenture shall be
other persons converted to shares of a company even
3. Offer made to existing members in terms of issue does not include any
proportion to their paid-up share provision of conversion
capital is called as “right shares”
4. Notice:
3. Such conversion is not accepted by the
i. If specifies no. of shares offered
company then such company may
ii. limiting the time period not less
appear to NCLT within (60) days.
than (15) days but not
exceeding (30) days
4. Govt. consider the following provisions
iii. not accepted shall be deemed
before order of such conversion
that those are declined

Right to Renunciation i. Financial position of company

ii. Terms of issue of debentures, loans,
1. Member of company shall rate of interest
renounce the shares offered to iii. Prices of shares
him in favour of any other iv. Any other matters it may consider
person necessary
Lapse of Time v. company has no appeal to NCLT
(i) After expiry of time (o)r person within (60) days then such
commission is registered
decline the notice then board of
directors may dispose in a
manner which is not against the
existing shareholders.
Special Resolution must pass in
case of right shares

Debentures

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 (Section 71 + Rule 18)
Definition Sec 2(30: Debentures includes debenture stock, bonds or any other …. of company evidencing as a
debt when constituting a change on the asset of the company or not.
Conditions:
1. No company can issue debenture with voting Rights
2. Company can issue convertible debentures by passing SR - GM
3. Company can issue secured debentures with redemption period of 10 years
Exception:
Infrastructural projects financing, Infrastructural debt financing redemption period of 30 years
4. Debenture certificate are required to be delivered within (6) months from the date of allotment of
debentures.

Debenture Redemption Reserve (DRR)

1. It is created out of profits available for dividend which companies should create DRR?
All India Financial Institutions regulated by …. Banking companies (not required to create)
Listed companies (not required)
Unlisted Companies Regulated RBI
Others – must create
10% of value of o/s debentures

After section 67 exception (contain at end)

Bonus Shares
(Section 63)
Capitalization of Profits / Reserve
Bonus shares are the equity shares to existing shareholders free of cost
Conditions:
1. Authorised in AOA
2. Bonus shares are offered to fully paid up equity shares if there are partly paid up they must converted to
fully paid up.
3. Bonus shares are recommended by the Board of Directors at the company
4. Once the company announce the Bonus shares it is not having right to withdraw.
5. Bonus shares are authorized by shareholders, General Meeting for passing ordinary resolution

Sources for issue of Bonus Shares

Free Reserve Securities Premium CRR A/c

 Resolution Reserve are not utilized for the purpose of issue of Bonus Shares
 Bonus shares are issued by a company not defaulted i:-
 Repayment of deposits & interest thereon
 Repayment of debentures & interest thereon

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  Payment of statutory dues
 Bonus shall not be issued in lien of dividend

Resolution of Share Capital

(Section 66)
 Reduction of capital is not permitted as per Section 66
 It only provides (3) Modes for reduction of capital
1. Extinguishment (or) reduce liability on unpaid capital
A company had issued shares of `10 face value of ` 6 is paid up. The company may reduce the ace value
of its share to ` 6 lakhs extinguish the liability of ` 4.
 Instead of fully extinguishment the company also reduce the liability on unpaid amount.
 In the above example the company can reduce the face value to ` 9 then the liability on shares remain
` 3 only and the liability on ` 1 is extinguished.
2. Pay of any paid share capital

With Extinguishment Without Extinguishment

The company had issued shares of
`10 face value fully paid up the
company can choose to pay ` 2 to its
shareholders thereby reducing the
value to ` 8
Cancel any paid share capital. The company
can also cancel paid share capital which is lost
or unrepresented by available asset (internal
reconstruction)
Eg: A company had issued shares of 10 face
value fully paid up, the Bonus Shares that after
paying outside liabilities only 8 will be available
for shareholders if all the available asses are
sold.
 Where the share capital is reduced as
……………………………….

Procedure of Reduction of Capital

Co. Submit the approval NCLT Communicate

of reduction

 Order of Tribunal shall be punished Satisfied then

 Copy of Tribunal order & minute dealing Tribunal order Make any objection within (3) months
shall file to ROC of reduction

Consider the objection made by Authorities

No representation received then Tribunal
presumed that they have no objection

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 Consider Debts (or claims of creditors discharge
Determined (or) secured
Consent obtained

 Liability of past (or) present members shall be the difference of (2)

The amount as shares The amount

fined by order of ( – ) paid on
reduction shares

What happens when the name of the creditor is not entered in the list of creditors?
1. Where the name of the creditor who is entitled to object to the reduction of capital is not entered in the
list of creditors due to:-
 his ignorance of the proceedings of the reduction
 his ignorance about nature and effets of proceeding of reduction
Then the company commits default in respect of his debts
Every person who was the members of the company shall be liable

Restriction of purchase by a company loans given

by a company for purchase of shares
(Section 67)

1. Cannot buy its shares for investment ........

2. Cannot give loan for purchase of its shares
3. Reduction of capital
Exception:
1. Loan given by banking company in ordinary course of business
2. Loan given by a company to employee [Except Directors & KMP]
3. Purchase of shares to be held by trustee
 The shares must be fully paid up

Conditions:
In case of company covered shall be on (or) before 30 th day of April in each year and invest (or) deposit a
sum not less than 15% of the amount debentures maturing 31st day of March next year.

1st April 30th April deposited 31st March

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 Debenture Trustee [Debenture Trust Deed]

Appointment Duties Liabilities Removal

Appointment of one To protect the If debenture Can be removed

or more debenture interest of trustee guilty of from offer before
trustee debenture breach of trust or expiry of his tenure
holders fails to show the if approved by 3/4th
mandatory if degree of diligence of value of
Company can issue To redress the debentures
prospects grievance of
debenture holder Liable for
Company can make Damages
offer or invitation of
offer to public

Company makes an
offer to its members
exceeding 500
Disqualification

 Promoter/Director/KMP
Officer of Co. (or) its subsidiary
(or) holding (or) Associate
 Indebted to Company
 Beneficially holds shares in a company
 Business relation amount 2% of T/o (or)
50 lakhs duty immediate preeeding 2 years

When a company foils to redeem debenture interest on maturity date then debentures holders
have a right to vote to Tribunal.
The Tribunal may order to redeem the debentures and interest thereon and impose penal actions

-o0o-

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