Share Capital and Debentures CONCEPT NOTE 2s eteContents 1 Introduction 2 Important terms... 2.1 General Meeting, Annual General Meeting and Extraordinary General Meeting 2.2 Different types of Capital Explained...... 3. Section 43 - Kinds of share capital. 3.1 What are the different types of Share Capital?.. 3.2 What are the different types of Equity share capital? 3.2.1 What are the Conditions for issuing equity shares with Differential Voting Rights.. 4 Section 44 - Nature of shares or debentures _ a. 4.1 Whatis the nature of shares or Debentures? 5. Section 45 - Numbering of shares. 6 Section 46 - Certificate of shares. 7 Section 47 - vi ing rights ; f —_ 7.1 On what matters can equity shareholders vote? me am ook ek 7.2 On what matters can preference shareholders vote?. 7.3. Whatis the proportion of voting rights of Equity shareholders vis-a-vis preference shareholders? 8 8 — Section 48 - Variation of shareholder’ rights. 1 How can company vary(change) the rights attached to a particular class of shares? .. 8&2 Whatis dissent to any variation’ 8 Section 49 - Calls on shares of same class to be made on uniform basis. 10 Section 50 - Company to accept unpaid share capital, although not called up... 11 Section 51 - Payment of dividend in proportion to amount paid-up, 12 Section 52 - Application of premiums received on issue of shares... 13 Section 53- Prohibition on issue of shares at discount. .. 14 Section 54 - Issues of sweat equity shares... 14.1 What are sweat equity shares: 14.2 Whatare the con: ns for issuing sweat equity shares: 15 Section 55 - Issue and redemption of preference shares. 15.1 Whatare the conditions related to redemption of Preference shares? 15.2 What are the Conditions for issuing preference shares? 16 Section 56 Transfer and transmission of securities. 16.1 What is transfer and transmission of securities? 16.2 What is the procedure for transfer and transmission of securities?, Ltlpege WWW EDUTAP COIN QUEsY? HELLOMEDUTAP COIN / sia6207241 |16.3 Whats the penalty for violation of the above provision’ 17 Section 57 - Punishment for personation of shareholder. 17.1 Whatis personation of shareholder?..... 17.2 Whatis the penalty for personation of shareholder? 18 Section 58 - Refusal of registration and appeal against refusal. 19 Section 59- Rectification of register of members. 20 Section 60 - Publication of authorised, subscribed, and paid-up capital. 21 Section 61 - Power of limited company to alter its share capital. 22 Section 62 - Further issue of share capital. 22.1 What are the ways in which company can issue further share capital? 22.1.1 To the existing shareholders of the company. 22.1.2 To employees under ESOP. 22.1.3 Under Preferential Basis. : _ rs 21 23 Section 63 - Issue of bonus shares. 3 22 23.1 What are the sources for issue of bonus shares?..... = : 23 23.2 What are the conditions for issuing bonus shares?. te 23 24 Section 64 - Notice to be given to R rar for alteration of share capital. 24 24.1 How can company alter its share capital? . 24.2 Whatis the penalty for contravention of the provision? 25 Section 65 - Unlimited company to provide for reserve share capital on conversion into limited company. - é - 2A 26 Section 66 - Reduction of share capital... 125 125 26.1 Whatis the procedure of reduction of share capital?... 27 Section 67 - Restrictions on purchase by company or giving of loans by it for purchase of its shares. a 28 Section 68 - Power of company to purchase its own securities. 28.1 What are the sources for buy back of securities? 28.2 Conditions for Buyback.. 28.3 Maximum shares that can be bought back: mn? 28.4 Whats the penalty for contravention of the above provi 29 Section 69 - Transfer of certain sums to capital redemption reserve account. 30 Section 70- Prohibition for buy-back in certain circumstances. 31 Section 71 - Debentures. 31.1 What are convertible debentures: 31.2 Whatis debenture redemption reserve? .. 2lPage WWW.EDUTAP.CO.IN RY? HELLO@EDUTAP.CO.IN / £14620724131.3. Whatis Debenture Trustee? 32 Section 72 - Power to nominate. 1 Introduction In the Companies Act, 2013 as per the Syllabus mentioned, Specific reference to Chapter Ill, Chapter IV, Chapter Vill, Chapter X, Chapter XI, Chapter Xil and Chapter XXVII is mentioned. © Inthis lesson, we will cover Chapter IV = Share Capital and Debentures, which comprises of section 43 to section 72. * Before understanding the provisions of this chapter, let us learn few some basic terms which in better understanding of this lesson. help 2 Importantterms 2.1 General Meeting, Annual General Meeting and Extraordinary General Meeting ‘A general meeting is a meeting of a company's shareholders (unlike a board meeting, which isa meeting of the directors). There are 2 types of General Meetings: AGM and FGM 1. Annual General Meeting (AGM) once year to discuss the previous year's activities and accounts. itis held at the end of financial year. 2. Extraordinary General Meeting (EGM); An Extraordinary General Meeting (an EGM) can be defined as a meeting of shareholders which is not an Annual General Meeting (an AGM). itis held when some urgent issue about the company arises or any situation of crisis. Any meeting between two AGM is, GM. he AGM of a company ar organization is a meeting which it holds 2.2 Different types of Capital Explained 1. Authorised Capital: When a comme ‘Authorised Capital eee ane esd Capital Un-iesuee Capital registered, a legal For good fae Subscribed Capital | Un Subscribed document is prepared |eompanies, ther = called Memorandum | ‘Shen equals Paidup | UnPald of Association (MOA). subscribed Authorised Capital is capital and indicated in MOA. As | PAC UP tal per MOA, the maximum capital a company can raise by issuing shares to Public is capped as Authorised Capital. Amendment of AC can be done by taking the consent of shareholders. For example, sake, let us say Authorised capital is Rs.100 Crore for a company. 2. Issued Capital: When the need comes, a company can issue its shares and generate capital from shareholders. But the issued capital shall be less than the Authorised Capital. Example, sey the company issued shares worth Rs.75 Cr out of the total authorized capital of Rs.100 Cr. aie WWW. E0UTAP.COLIN RY? HELLO @EDUTAP.CO.IN 623. Subst shares will be taken/subscribed by investors. Though for good companies, issued shares can also get oversubscribed in IPO. > So, subscribed Capital is a portion of issued capital which people have applied for purchase during IPO. Example, say the company issued shares worth Rs.75 Cr out which only Rs.70 Cr worth shares was subscribed. This is an example of undersubscribed IPO. 4, Palc-up Capital: There can be three steps of subscription for the shareholders. It means, the shareholders will have to pay to the company in three steps. These steps can be 2) Upon application, b) On Allotment, and ©) On Call. Suppose few subscribers failed to pay the last instalments. In this case paid-up capital will be less than the subscribed capital. For example, consider paid-up capital as Rs.65 Cr. out of the total subscription of Rs.70 Crore, These terms will help us understand the chapter in better manner. yed Capital : Company can issue its shares in the market, but itis not necessary that all issued 3 Section 43 - Kinds of share capital. 3.1 What are the different types of Share Capital? |. “Equity share capital “, with reference to any company limited by shares, means all share capital which is not preference 4 share capital | ll, “Preference share capital”, with — \—_, —_ reference to any company limited by 7 "ight shares, would carry a preferential right venvtngsgee ||| 88 with respect to— | co i 1. Payment of dividend ‘ 2. Repayment of capital on winding up ins o*share cata th diferent | soe preferential right timect winding up 3.2, What are the different types of Equity share capitel? ‘Types of differential voting Rights are shown in the i Example to illustrate the above concept is mentioned below. thoes Youme tower one ens roa SOvaesereachshare | fp &EYotrenteh (30) oxalowcsenaay 1% 0shwes ston EDUTAP.CO\IN QUERY? HELLO@EDUTAP.CO.IN / 8146207741‘A DVR share is like an ordinary equity share, but it provides fewer voting rights to the [[==ey si Serr Sawa shareholder as shown in the [Lie sistem ener image. Four Indian companies, Tata IN Motors, Pantaloons Retail India, [Jaen Gujarat NRE Coke, and Jain EMOTE? Irrigation Systems have issued DVRs so fer. * Explained - Tata Motors vs Tata Motors DVR (Differential Voting Rights) * In 2008, Tata Motors issued DVR shares for raising the funds for acquisition of Jaguar Land Rover. It was the first company in India to issue DVR shares and amongst the very few in Asia. «To fund the acquisition of Jaguar Land Rover, it issued 6.4 crore DVR shares at Rs.305 a share which was at 10.3% discount to the ordinary share price of Rs.340. + These DVRs offer 5% more dividends. DVRs carry one-tenth the voting rights of ordinary shares. This means 10 DVR chares equal one ordinary chare as far as voting righte are concerned. 3.2.1 What are the Conditions for issuing equity shares with Differential Voting Rights 1. Authorization in Articles of Association. 2. Ordinary Resolution at General Meating of shareholders. (In case of listed company, | puss approval through postal ballot is sufficient). 2/[2/2 [2] oe 3. Voting Power in respect of shares with differential voting rights of the company shall not exceed 74% of total voting power including voting power in respect of equity shares with differential rights issued at any point of time. 4, No default in filing financial issuing statements and 'D Companyhas me subsisting default in the annual returns ff > Sauataleidaatndialetuohline > proraantefloaposten auch doposhs or cenaatareecrpxymanta aiden financial years x 1 the company as nocdefauieis immediately ‘hamentofthedivienson preference shares ot reetymentoanytarmloan rem pu nancialinsitution or Ranker intres:paybletheren or preceding the ‘© dues with rospectto statutory paymonts relalingto its employees vo any authority or defaultin crediting the ‘goountin Imesior Education and Protection financial year in Ba compeny mayissue ecu shares wih ciferenil igs upon expo five yeas rom heen cf the renal which it is |) Yearinwnich such default was mace good.) decided to issue |) O thecompany has not been penalizeity Court or Tribunal duringthelastithree years of anyotfencounder the REL Actythe SEBI Act, tho SCRA, tho FEMA or any othor special Act such shares. {The companyshallnot convertitsexstingequity share capital with voting rights nto equly share capital 5. There are Few J digerenciaivotingrightsandvice-versa, other conditions {Wheres company ssuos quit shares with differant ight the Register of Nembersmalnzainodin FormNo, as mentioned in |} MoT1:hallcontainaitherelevantparticularso the sharesco issued alongwith details ofthe sbarchoeers the image:4 Section 44 - Nature of shares or debentures 4.1 Whats the nature of shares or Debentures? Shares and debentures are movable property and transferable in the manner as provided in articles of the company. Movable Property Exemples Movable assets examples are everything that can be transported from one place to another, including: 1. Vehicles, electronic devices, jewellery, books, timber, etc. 2. Promissory notes issued by government offices 3. Any machinery equipment that is not attached to the earth 4, Shares Etc. 5 Section 45 - Numbering of shares Every share shall be having a distinctive number. (No need of distinctive number if shares are held in dematerialised form) ‘+ This section does not relevance today because in the case of listed Companies shares are held in Dematerialized form. + In case of Private companies, Unlisted public ‘Companies etc. still shares are issued in physical form where this section holds relevance. 6 Section 46 - Certificate of shares. What are the Provisions i ‘+ Acertificate specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares if issued; ‘8, Under the common seal if any of the company or bb. Signed by two directors or . Signed by a director and the Company Secretary, wherever the company has appointed 2 Company Secretary © Where share is held in demat form, the record of the depository shall be prima facie evidence of the interest of the beneficial owner. 6lPage WWW.EDUTAP.COVIN QUERY? HELLO@EDUTAP,CO.IN / £146207241Who shall sign the st ti The answer is discussed in the |] Ceifeste of shore aha eee 2 posible and shal spec Incase company hat acommen sel zal image: the: nama(s) of the parsore) in whose ‘over the| gam) | be aimed nthe presence of persons ceria bisued, reared sen tecereate, beth shares to which relates and The amaunt paid thereon ‘andi shall be snes + Byte directors of + Byodvestor& he company secretary + Signature f done dighally or by 0 equipment or Ithograph willbe sufciet provided thatthe director shall bbe personally responsible for permitting the affaation of his signature thus and the safe custody of any ‘mathin, equipment or ather material uted forthe purpoea, (Not by ruber stam, (0F€-> Sgn by one Drector& Company seretry or an other person authorised by Boards sufficient. What a instances when duplicate certificate of shares may be issued? The instances are discussed in the image. mp | Ovens cortcate has been defaced, mutated or tom and ts surrendered to the company Note: L.A company mey replace allthe existing certificates by new certificates upon sub-division or conseldation of shares or merger or demerger of any reconstitution without requiring old certificates to be surrendered 2. On renewed coreficate it shall be stated tha It is issued in leu of share certificate No... sub-dhidad/replaced/on consolidation” 3. Company may chorge such a fee as board may think fit, but not exceeding * 50 per certificate; and no fee zhall be payable pursuant to scheme of artangement sanctioned by the High Court or Central Govecnment ‘A case wherein share certificate originally issue has been lost or Wap | destoyed, a share certicate lr dupleate tay be tsued If board ts const fr the same besed upon evidences produced. Note: 4. Company may charge fees as the Board thinks fi, nat exceading rupees fifty per cartifest. 2. On the face of duplicate certificate, It shall be stated prominently that itis “duplicate issued in lieu of share certificate No” and the word “duplicate” shall be stamped or printed prominently 4. In case unlisted companies, the cuplicate share certificates shal be issued within a period of three months and in case of listed companies such certificate shal be issued within fifteen days, from the date of submission of complete documents with the company, respectivaly. Record of renewed and duplicate certificate to be maintained: + Particulars of every renewed and duplicate share certificates maintained in Form SH 2 with cross reference to register of members, in shape of regit + Such register shall be kept at registered office or any other place where register of members are in custody of company secretary or such other person as may be authorised by the Board. + all entries made in such register shall be authenticated by the company secretary or such other person as may be authorised by the Board. er. WWW.EDUTAP.CO.IN ERY? HELLO@EDUTAP.CO.IN / 8146207241 SLWhat Is time period for preservation of books of the Company? i (SSIES RCTS I) ‘The answer is discussed in the image. + penn nen tos [ee EY What is the penalty for violation of the above provisions? ia ecacc] ww bees er boc =) — lee nae ta re rm — Haro Tn inn he The penalty is discussed in the image. a eae eee erences —— [mutacin 7 — Section 47 - Voting rights — | vertes eatystereroides) ofthe) mmm [ees ei tee one 7.1 On what matters can equity shareholders vote? Equity shareholders can vote on the matters as discussed in the image. eerie Hato 3p na Ben proportion te hihare i the ai 7.2 On what matters can preference shareholders. |[rmenxnomsmererowe | pearson vote? Preference shareholders can vote on the matters discussed in the ]/* s!it fein tes oe row soset w ns at ecto tte omen image. 7.3. What is the proportion of voting rights of Equity shareholders vis-a-vis preference shareholders? The proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares. 8 Section 48 - Variation of shareholder's rights 8.1 How can company vary(change) the rights attached to a particular class of shares? IF the company wants to vary(change) the rights attached to a particular class of shares, following are the conditions. 1, Permission in memorandum or articles of company 2. No express provision in memorandum or articles then Such variation shall not be prohibited in Terms of Issue of shares of that class. gipage WWW EDUTAP COIN HELLO@EDUTAP.CO.IN / 8146