Meaning and Nature of Share

Advocate Yam Kumar Yonjan (Ph.D. Scholar)

Faculty Member, Nepal Law Campus
(LL.M. Commercial Law and International Law)
 Meaning of Share:
The term capital usually means a particular amount of money with which a
business is started.
In Nepalese Companies Act, it has been used in different senses in various
parts of the Act, but in general it means the money subscribed pursuant to
Memorandum of Association of the Company.
The sum total of nominal value of shares of a company is known as its share
capital. In case of companies, the terms ‘capital’ and ‘share capital’ have
been held to be synonymous. Capital to be stated in the Memorandum of
Association and Articles of Association of the Company.
A corporation's share capital or capital stock (in US English) is the
portion of a corporation's equity that has been obtained by the issue of 
shares in the corporation to a shareholder, usually for cash. "Share capital"
may also denote the number and types of shares that compose a
corporation's share structure.
 Meaning of Share:
In a strict accounting sense, share capital is the nominal value of issued shares
 (that is, the sum of their par values, sometimes indicated on share certificates).
Commonly, the share capital is the total of the aforementioned nominal share
capital and the premium share capital. Conversely, when shares are issued
below par, they are said to be issued at a discount or part-paid.
In practice, the concept of "par value" has very little meaning, since shares
usually represent a residual claim; they do not endow their owners with a claim
toward any fixed sum of money.
In some jurisdictions, share par values have been either abolished or made
optional, so a corporation can issue shares having no par value. In that case,
from an accounting perspective, all of the corporation's share capital is
premium.
Besides its meaning in accounting, described above, "share capital" may also
describe the number and types of shares that compose a corporation's share
structure.
Meaning of Share:
The legal aspects of share capital are mostly dealt with in a jurisdiction's 
corporate law system. An example of such an issue is that when a company
allocates new shares, it must do so without inequitably diluting its existing
shareholders.
Share Capital means the amount invested by the owners of the company for
running the business.
Shareholders are considered as the owners of the Company. As there are more
than one shareholder /owners in a company, the total capital of the company is
divided in in to small units called ‘Share’ for ease of distribution and
identification.
Share is defined as ‘a share in the share capital of a company’. A shareholder
holds the proportion of the share capital which entitles him different rights in
the company.
Shareholders have to pay money to company as investment to obtain the shares
of the company.
 Meaning of Share:
The term capital cannot be defined in one sentence or one line. The
meaning of capital may vary. It depends on the different situation or
context. Generally the meaning of capital is real value of property. So,
capital has different meaning according to context.
In simple word, the term capital denotes a particular amount of money with
which a business is started.
In the case of company, the term share capital refers to amount raised by
the issue of shares.
Actually, the real value of business is capital.
C. B. Gower ‘’ with the normal business capital is a simple name given to the
‘net worth of business’, the amount by which the value of assets exceeds the
liabilities.
By this definition only value of assets which exceeds the liabilities is the
capital.
 Meaning of Share:
So, what is net worth?
As per Section (2 z 3) of the Companies Act 2063 of Nepal ‘’ net worth means the assets of
a company remaining after deducting the paid up capital, reserve, fund or free reserve of
whatever designation to which shareholders have right or all other liabilities other than
goodwill, if any, of the company as well as loss provisions, if any, from the total assets of
the company for the time being.
Capital is highly important to run a company on the basis of limited liability.
Creditors always recover their debt from only the capital of company, not by the
shareholders individually or personally.
So, company laws in every state have prescribed a guideline regarding capital raising or
formation and its maintenance of limited liability of company Mainly, there are three ways
to raise capital for company.
1. By issuing shares
2. By issuing debenture
3. By accepting other types of loan
One of fundamental or basic source of capital in company is Share.
Meaning of Share
Share capital is an important source of company to raise a fund or capital.
By the phrase it is clear that share capital is the capital raised by issuing the share.
Share capital=share capital.
If so, what is share?
Share is certificate representing a unit ownership in a company.
A share is the interest of shareholder in the company measured by a sum of money,
for the purpose of liability in first place and of interest in second, but also consisting
series of mutual covenants entered in to by all shareholders (Farwell J in Borland’s
Trustee v. Steel Brothers, 1901, 1 Ch 279)
Section 2 (n) of the Companies Act 2063 BS states that share is divided portion of
share capital of a company.
Share capital is equity of company. Share capital generally refers the nominal value of
all share issued by company.
Every company should mention its share capital in its MoA & AoA.
Share capital refers to the amount of company raised by the issuing of shares.
Meaning of Share
Issuing of share is mandatory legal provision as per section 18(1) e, f, g, h, i of the
Companies Act 2006 of Nepal.
As per these legal provisions;
–The figure of authorized capital of company, the figure of share capital to be issued by
the company and the figure of capital undertaken to be paid by promoters must be
mentioned in memorandum.
–Similarly, types of shares, inherent right in such shares, value and numbers of shares,
restriction (if any) on purchase of shares, promoters’ shares (undertaken to subscribe
for the time being) & terms of payment of share amount must be mentioned in MoA.
The OCR will take certain fees on basis such share capital amount as registration fees
of company.
The person who has ownership in share of company is known as shareholder of
company.
As per section 2(r) of the Companies Act, Shareholder means a person having
ownership in the share of company.
 Meaning of Share
According to section 2(n) Share means the divided portion of share capital of a
company.
According to Robert R. Pennigton (Pennigton’s Company Law 6th ed p. 136) –Share
Capital is amount contributed by shareholders to company’s resources.
The received amount for the price of share is share capital. The amount contributed by
shareholders is main capital of company. Such share capital is the real property of
company, not a loan, but property.
Share capital is not refunded until company is liquidated.
The company is not allowed to distribute dividend from such share capital, can
distribute only from profit.
There is statutory provision relating to prohibition on purchase by company of its own
share.
Section 61(1) of the Companies Act , No company shall purchase its own share (buy-
back) or lend money against security of its own share except in particular conditions
prescribed by the company Act.
Company is not a creditor and debtor of its own.
 Meaning of Share
So, share capital is fixed capital of company.
The desired goal or nature of business of company
determines the share capital of company.
The share capital is depended upon the nature of particular
company. For example; Private company, public company,
Banking Company, Insurance company, Company as school.
Companies expect profit not sharing company should
mention share capital in MoA & AoA in the form of
Authorized Capital/Issued Capital /Paid up capital.
The share capital is divided on different value units or shares.
So, price value of each share is mentioned in share certificate.
Types of share capital
Shares are classified in to different classes depends on the
rights and preferences attached to it. Shares are mainly
divided in to Equity and Preference Capital.  These types
of capital differ on their right to vote on certain corporate
matters.
Share Capital of the Company – Different Terms
1. Authorized Share Capital
2. Issued Share Capital
3. Subscribed Share Capital
4. Called up Share Capital
5. Paid up Share Capital
Types of share capital
1. Authorized Capital

The Authorized Capital is the maximum amount a company can raise from its shareholders as Share
Capital. This amount is referred in Capital Clause of Memorandum of Association (MOA) of the Company.
In case the company is required to raise more capital, the company can increase the authorized capital by
altering its MOA with the approval of its members.
Company Registration fee payable to the Registrar of Companies and the stamp duty is dependent on
Authorized Capital the company.  
Every time the company increases its Authorized Capital the incremental / additional registration fee and
Stamp duty are payable to the office of Registrar of Companies.
2. Issued Capital
Company can allocate a portion of its authorized capital from time to time to the investors and shareholder
and collect capital investment by way of issue of shares.
It is not necessary to issue full amount of authorized capital at a time. Issued Capital is the amount offered
by the company from time to time proposed investors.
It is issued by the company initially during incorporation and occasionally by way of allotment of shares
for subscription.
The issued share capital has to be always within the amount of authorized capital as mentioned in the
memorandum. Shares can be issued at face value (par value) or at a Premium. Also, the company has to
issue Share Certificates to the shareholders within certain days of share issue as mentioned at law.
 Types of share capital
2. Subscribed Capital
 The total amount of capital that the investors / shareholders are agreed to pay is called as subscribed
capital of company. The subscribed capital shall be always equal or less than the issued capital of the
company.
3. Called-Up Capital
 The companies free to collect the subscribed capital in installments from shareholders. Called-up capital
refers to the particular amount of capital which has been called for payment.
 The company issuing the shares may call-up the capital partly or fully. If the shares are partly called, the
remaining part is considered to be yet to be called and hence named as partly paid-up share capital.
 Once the shareholder pays the remaining amount of share capital, it is considered to be fully-paid up. This
way of calling the shares relieves the burden on the investor from paying a lump sum amount of money at
once.
3. Paid-up Capital
 The paid-up capital refers to any amount of money which has been paid-up with respect to the shares
which are being called by the company.
 The shareholders receive Shares in the company for the capital payments. Paid-up capital can never be
more than the authorized capital of the company.
 
TYPES OF CAPITAL
There are so many types of share capital in the companies. Basically, The Companies Act
2006 (2063 B. S.)  of Nepal has determined following types of share capital.
1. Authorized Share Capital or Nominal Capital.
 Authorized share Capital is sum of money which is mentioned in MoA as the authorized
capital of company.
 It is nominal or registered capital of company.
 It is maximum amount which a company is authorized to raise by issue of shares
and upon which company pays the registration fees of company.
 Either the full amount or part of full amount can be issued whenever needs to rise.
 Total nominal value of shares which is mentioned in memorandum is authorized capital.
 Practically, the size of authorized capital is decorative significance for private company.
 Present company Act of Nepal is silent about how much authorized capital should be
mentioned in a company, but it is understood that issued & paid up capital must not
exceed the authorized capital.
 Paid up capital of a public company shall be a minimum of 10 million or one corer rupees.
(Section 11 of Act).
 So, it is clear, there is a pre-condition regarding authorized capital of a public company
that public company shall have a minimum of a 10 million share capital.
TYPES OF CAPITAL
No authorized capital is needed for a profit not sharing company.
No such demarcation of authorized capital for a private company in Nepal.
Life & on-life insurance company should maintain their paid up capital 2 arab (life insurance companies
& 1 arab for no-life insurance companies respectively. It means the authorized capital of such insurance
company should not be less than that figure of amount. Authorized capital of banking company is
guided by BaFI Act and NRB Act, ( A class Commercial Bank requires 8 arab paid up capital.
For private company, it depends upon the business volume, nature of business or transactions e.g.
vehicle trading company, vegetable trading company, Hydropower Company, constructions company ,
consultancy service provider company etc.
Authorized capital is maximum limitation of capital of company. So, company cannot issue share above
the authorized capital, if issued it will be null & void.
As per section 18(1) (e) of the companies Act, the authorized capital of company must be stated in MoA.
As per legal provision of section 51 (2 ) (a) of Nepalese company Act every company shall prepare the
inventory regarding authorized capital and shares of the company.
Section 56 (1 )(a) &( 3) states that the company  should give information within 7 days about  alteration
of authorized capital. If such alteration took place the MoA & AoA must be amended according to such
alteration.
TYPES OF CAPITAL
2. Issued Capital.
Part of authorized capital which is offered for subscription is known as issued capital
of company.
Issued capital is the portion of company’s authorized capital that can be issued to its
shareholders.
It is not obligatory for the company to issue the whole of the authorized capital for
subscription.
In almost situation, company need not necessary all its authorized capital, at that time
company can issue lower share than its authorized capital. It depends upon business
transactions of company.
The capital that will be collected from issuance of such lower share is actually the issued
capital.
Public company must have 10 million paid up capital as per section 11 of the companies
Act 2006 of Nepal. So, Issued capital of public company must not be below the 10 million.
As per section 18(1) (e) of the companies Act, the issued capital of company must be
stated in MoA.
TYPES OF CAPITAL
As per legal provision of section 51 (2) (b) of Nepalese company Act every
company shall prepare the inventory regarding issued capital and shares of
the company.
As per Section 56 (5), if a company is required to increase its issued capital to
the extent of its authorized capital, it may increase by adopting an ordinary
resolution at the general meeting.
Public company must have 10 million paid up capital as per section 11 of the
companies Act 2006 of Nepal. So, Issued capital of public company must be
maintained as per this legal provision.
As per special law, some companies such as banking companies & insurance
companies must have the issued capital as stated in special law relating to
such companies e.g. for insurance company and banking companies.
Private company can determine its issued capital as per the requirements of
its business transactions.
TYPES OF CAPITAL
3. Paid – up Capital
In reality, paid up capital is that type of capital which the company actually
gets from the shareholders.
By the name, it is understood that paid up capital is the capital which is paid
by the shareholders in company.
The paid amount by the shareholders for share is paid up capital of company.
Paid up capital is the amount that has actually been paid – up by shareholders.
The paid – up Capital must be paid by the shareholders, otherwise it is
treated as unpaid amount to the company. Like dues.
Public company must have 10 million paid up capital as per section 11 of the
Companies Act 2006 of Nepal. So, paid- up capital of public company must be
maintained as per this legal provision. Private companies can manage its paid
up capital as per its necessity, nature & volume of business transaction.
TYPES OF CAPITAL
As per section 18(1) (e) of the Companies Act, the paid-up capital of
company must be mentioned in MoA.
 Private company can mention the paid up capital as per their
needs, no any legal instructions for private companies.
As per legal provision of section 51 (2 ) (c) of Nepalese company
Act every company shall prepare the inventory regarding paid-up
capital and shares of the company.
As per Section 56(1) & (5),every company can make alteration on its
share capital by adopting a special resolution in general meeting.
It means the paid up capital of company may be altered, if altered,
the MoA & AoA must be amended as per section 56 (2) of the
Companies Act.
Other Types of Capital
1. Subscribed Capital.
Subscribed capital is the amount of share capital which the shareholders have subscribed or
agreed to subscribe.
The subscribed capital should be described in balance sheet of company.
Sometime the issued shares of a public company may not be sold or subscribed. The part of issued
capital which has been actually taken up or subscribed for the public is the subscribed
capital. Which the shareholders have actually subscribed or agreed to subscribe.  All issued capital
may not be subscribed or agreed to subscribe. So, subscribed capital is the capital which is actually
subscribed or agreed to subscribe.
The entire issued capital may be agreed to subscribe or subscribed by public in case of a reputed
company because of has lot of good will, but in case of very unpopular or unsound companies the
subscribed capital may be less than issued capital.
The subscribed capital is not mentioned in MoA & AoA, it is mentioned only in balance sheet of
company.
Though there is no clear provision regarding subscribed capital in Nepalese companies Act,
but the concept of subscribed capital is accepted by this Act. That can be found by reading of
respective sections of chapter 4 of the Companies Actg. the provisions relating to alteration &
reduction of share capital, mentioned in section 56 & 57 of the Companies Act.
Other Types of Capital
2. Reserved Capital
The capital of a company which can be generated by issuing of share in particular
event, if the board feels necessary. The reserved capital is collected from
the remaining part of issued capital which is not called for payment or
subscribed before.
The reserved capital is the part of issued capital of a company, which the company
has not issued but that is the amount within the issued capital. From such part of
issued capital, if the board feels necessary, the board can collect the reserve fund from
that part of issued capital only in the event of liquidation or insolvency of
company.
There will not be provision of reserve capital in all companies. As per the legal
provision of section 53(7) of the Companies Act 2063 “ a company which has
been making profit for a period of 3 consecutive years or more may , by a special
resolution adopted at its general meeting, determine that a call may not be made in
respect of certain portion of its share capital not call in expect in case of liquidation
or insolvency of company.’’ Such uncalled capital is reserve capital of company.
Types of Share Capital
Types of Equity Share
The Main Types of shares are:
1. Ordinary Share: Ordinary shares are the most common type of shares and are standard
shares with no special rights or restrictions. They have the potential to give the highest
financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting
rights; however, they are the last to be paid if the company is wound up.
2. Non- Voting Ordinary Share: Non-voting ordinary shares carry the same conditions
as ordinary shares except with regards to voting rights. Shareholders may have voting rights
under certain circumstances or they may have no voting rights at all.
3. Preference Share: Preference shares typically carry a right that gives the holder
preferential treatment when annual dividends are distributed to shareholders. Shares in this
category receive a fixed dividend, which means that a shareholder would not benefit from an
increase in the business' profits. However, usually they have rights to their dividend ahead of
ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.
4. Cumulative Preference share: Cumulative preference shares give holders the right
that, if a dividend cannot be paid one year, it will be carried forward to successive years.
Dividends on cumulative preference shares must be paid, despite the earning levels of the
business, provided the company has profits that can be distributed .
The Main Types of shares are:
5. Redeemable shares come with an agreement that the company can buy
them back at a future date - this can be at a fixed date or at the choice of
the business. A company cannot issue only redeemable shares, so they
must ensure that they also issue non-redeemable shares.
6. Right share: When you make an investment in equity shares and the
company issues further shares to you, it is termed as the right shares. The
right shares are issued to protect the ownership of the existing investors.
7. Bonus Share: Bonus shares are issued by the company to its investors in
the form of a dividend.
8. Sweet Equity Share: When the employees or directors perform their job
well in terms of providing know-how or intellectual property rights to the
company, the company issues sweat equity shares to them as a reward.
Nature of Share Capital
The words capital and share capital are synonymous in the case of a joint company.
Share capital means the capital raised by the company by issue of shares.
In short, there is one consolidated capital account called share capital account. The
companies limited by guarantee or unlimited companies need not have share
capital.
 The term capital has different expressions or meanings such as:
(i) Authorized or Nominal or Registered capital
(ii) (ii) Issued capital
(iii) (iii) Subscribed capital
(iv) (iv)Called up capital
(v) (v) Paid up capital
(vi) (vi) Uncalled capital
(vii) (vii) Reserve capital.
 Nature of Share Capital
(i)  Authorized or nominal or registered capital: 
 Authorized share capital is the maximum amount of share capital, mentioned
in the memorandum of association, which the company is entitled to issue.
The terms authorized, nominal and registered with reference to share capital
are synonymous.
 The Memorandum of every company has to specify the amount of capital with
which it wants to be registered.
(ii)  Issued capital: 
 It is that portion of authorized share capital for which offers have been invited
for subscription. This includes any bonus shares allotted by the corporate
enterprise.
 It also includes shares allotted to vendors of assets or promoters for
consideration other than cash. That portion of authorized share capital for
which offers have not been invited for subscription is called unissued share
capital. The issued capital can never exceed its authorized capital.
Nature of Share Capital
(iii)    Subscribed capital: 
It represents that part of the issued share capital which has actually been subscribed and allotted. This
includes any bonus shares allotted by the corporate enterprise. It is also called allotted capital.
It is immaterial whether the shares are fully paid or partly paid. It must be noted that where the shares
issued for subscriptions are wholly subscribed for, the terms issued and subscribed capitals are the same.
(iv) Called-up capital:
 It is that part of the subscribed share capital which the company actually demands from the
shareholders. The security premium money is not a part of the called up share capital.
(v)    Paid-up share capital:
 It represents, “that part of the subscribed share capital for which consideration in cash or otherwise has
been received”.
In other words, it means the total amount paid up or credited as paid up on the subscribed capital.
Some of the shareholders may fail to pay the amount due from them on accounts of a call which is
termed as calls-in-arrears or unpaid capital.
(vi)  Uncalled share capital:
 It is that amount which is not yet demanded by the company on the shares subscribed and allotted and
which the shareholders are liable to pay as and when called.
Nature of Share Capital
(vii) Reserve capital:
 It is that portion of the subscribed capital which has not been called up and which, the company
has resolved by special resolution can be called up only in the event of and for the purpose of the
company being wound up, that is, capital which has been reserved for winding up.
The word ‘reserve capital’ has been substituted by the more accurate expression: “reserve liability
of limited the business point of view, a company limited by guarantee and having a share capital.
Capital so reserved cannot be dealt with any manner i.e., neither a company can borrow on the
security of tits reserve capital nor can it be charged by the directors. Reserve capital may also be
subjected to reduction.
 
(viii) Fixed Capital:
The fixed capital of a company is what the company retains in the shape of fixed assets such as
land and buildings, plant, machinery and furniture etc.
(ix) Circulating Capital:
Circulating Capital is a part of subscribed capital which is circulated in business in the form of
using goods or other assets such as book debts, bill receivables, cash, and bank balance etc.
Difference between Equity Share Capital
and Preferential Share Capital
1. Equity Share Capital – Equity Shares
All share capital which is NOT preferential share capital is Equity Share
Capital. Equity shares are of two types:
a. With voting rights
b. With differential rights to voting, dividends, etc., in accordance
with the rules.
In 2008, Tata Motors introduced equity shares with differential voting
rights – the ‘A’ equity shares. According to the issue,
Every 10 ‘A’ equity shares have one voting right
‘A’ equity shares get 5 percentage points more dividend than the
ordinary shares.
Due to the difference in voting rights, the ‘A’ equity shares traded at a
discount to ordinary shares with complete voting rights.
Difference between Equity Share Capital
and Preferential Share Capital
2. Preferential Share Capital
The preferential share capital is that part of the Issued share
capital of the company carrying a preferential right for:
a. Dividend Payment – A fixed amount or amount calculated
at a fixed rate. This might/might not be subject to income
tax.
b. Repayment – In case of a winding up or repayment of the
amount of paid-up share capital, there is a preferential right
to the payment of any fixed premium or premium on any
fixed scale. The Memorandum or Articles of the company
 specifies the same.
Deeming of Capital as Preferential Capital
 In certain cases, capital is deemed as preferential capital even
though it is entitled to either or both of the following rights:
For dividends, apart from the preferential rights to amounts
specified above, it can participate (fully or to a certain extent)
with capital not entitled to the preferential rights.
In case of a winding up, apart from the preferential right of
the capital amounts specified above, it can participate (fully
or to a certain extent), with capital not entitled to
preferential rights in any surplus remaining after repaying
the entire capital.
 Rights of Shareholders
1. Voting Power on Major Issues:
Voting power includes electing directors and proposals for fundamental
changes affecting the company such as mergers or liquidation.
Voting takes place at the company’s annual meeting. If the shareholder
cannot attend, they can do so by proxy and mail in their vote.
2. Ownership in a Portion of the Company: 
• Previously, we discussed a corporate liquidation where bondholders
and preferred shareholders are paid first. However, when business
thrives, common shareholders own a piece of something that has value.
• Common shareholders have a claim on a portion of the assets owned by
the company. As these assets generate profits and as the profits are
reinvested in additional assets, shareholders see a return as the value of
their shares increases as stock prices rise.
 Rights of Shareholders
3. The Right to Transfer Ownership: 
• The right to transfer ownership means shareholders are allowed to trade their stock on an exchange.
• The right to transfer ownership might seem mundane, but the liquidity provided by stock
exchanges is important. Liquidity—the degree to which an asset or security can be quickly bought
or sold in the market without affecting the asset’s price—is one of the key factors that differentiate
stocks from an investment such as real estate.
• If an investor owns the property, it can take months to convert that investment into cash. Because
stocks are so liquid, investors can move their money into other places almost instantaneously.
4. An Entitlement to Dividends:
• Along with a claim on assets, investors also receive a claim to any profits the company pays out in
the form of a dividend.
• Management of a company essentially has two options with profits: they can be reinvested back into
the firm (thus, one hope, increasing the company’s overall value) or paid out in the form of a
dividend.
• Investors do not have a say as to what percentage of profits should be paid out—the board of
directors decides this. However, whenever dividends are declared, common shareholders are
entitled to receive their share.
Rights of Shareholders
5. Opportunity to Inspect Corporate Books and
Records: 
• Shareholders have the right to examine basic
documents such as company bylaws and minutes of
board meetings. Most companies produce 
two versions of their annual report.
6. The Right to Sue for Wrongful Acts: 
• Suing a company typically takes the form of a
shareholder class-action lawsuit.
Rights of Equity shareholders
 Equity shareholders are the owners of the company and as owners they enjoy
certain rights. They are as follows Right to income: They share the profits of the
company after meeting its all other fixed obligations.
1. Right to control:
 The shareholders have the right to elect the board of directors and thereby,
get some control over the management of the company.
2. The Pre-emptive right:
 The existing shareholders are given the right to maintain their proportional
ownership by purchasing additional equity shares issued by the company.
 When the new issues are made, the existing shareholders are to be given a
preferential right to buy the new issue in proportion to their holding. This is
known as right shares.
 These shares are issued to the existing shareholders at a price lower than the
price at which it is issued to the public.
Rights of Equity shareholders
3. Right against Ultra Vires acts of the company:
 Equity shareholders are exposed to the risks mentioned in the Memorandum and
Articles of Association of the company. The any act done by the company, which is not
mentioned in the Memorandum and Articles, are ultra vires.
 Therefore, the acts of ultra vires are a breach of the agreement between the company
and the shareholders.
 The equity shareholders have the right to take legal steps against the company to
prevent it from engaging in such actions.
4. Right to have knowledge of corporate affairs:
 The equity shareholders have the right to know about the affairs of the
company at least once a year. The shareholders can present all their
grievances at the annual general meeting of the company.
5. Right to transfer shares:
 The shareholders have the right to transfer equity shares to anyone they like.
If dissatisfied, they can convert their shares into cash in the stock market.
 Rights of Equity shareholders
6. Right to receive copies:
 Right to receive copies (electronic will do) of the annual report of the company
containing the balance sheet, the profit and loss account and the auditor’s report.
7. Right to participate and vote during general meetings:
 Right to participate and vote during general meetings of the company he or she owns shares
in either personally or through proxy.
8. Right to receive dividends :
 Equity Shareholders have Right to receive dividends in due time once the amount has been
approved and announced in the general meetings. 
9. Miscellaneous Rights:
 The equity shareholders have the right to participate in exceptional profits in the proportion
to their respective holdings.
 Moreover, at the time of liquidation of the company, they have a right to get proportionate
share in the net assets available for distribution.

 
 Issue of Share:
Issue of the share is the process in which companies allot new shares to
shareholders. Shareholders can be either individuals or corporate.
The company follows the certain rules while issuing the shares such as issue of
prospectus, receiving applications and allotment of Shares are three basic
steps of the procedure of issuing share.
The process of creating new share is known as allocation and allotment.
There are two types of shares which are issued or allotted by the company namely
Equity share and Preference share but they have different natures, rights
and obligations.
Share of a company is one of the units into which the capital of the company is
divided. Thus, share is the basis of ownership of the company and the person who
holds such shares is known as a shareholder.
Generally, articles of association of a company will contain some essential
information about shares and share capital, like the the classes of the share to be
prescribed.
Issue of Share
Preference share:
 A preference share is one which carries two exclusive preferential rights over
the other types of shares, i.e. equity share.
 A preferential right with respect to the dividends declared by a company. Such
dividends can be at a fixed rate on the nominal value of the share held by
them. So the dividend is first paid to preference shareholders.
 Preferential right when it comes to repayment of capital in case of liquidation
of the Company. This means that the preference shareholders get paid out
earlier than the equity shareholders.
 Preference Share can be of various types as well
1. Redeemable and Irredeemable.
2. Participating (participate in future profits after a dividend is paid out) and
Non-participating.
3. Cumulative (arrears in demand will cumulate) and non-cumulative.
Issue of Share
Equity Share:
 Equity share is a share that is simply not a preference share. So shares
that do not enjoy any preferential rights are thus equity share.
 They only enjoy equity, i.e. ownership in the company.
 The dividend given to equity shareholders is not fixed. It is decided by
the Board of Directors according to the financial performance of the
company. If a given year no dividend can be declared, the
shareholders lose the dividend for that year, it does not cumulate.
 Equity shareholders also have proportional voting rights according to
the paid up capital of the company. Essentially, it is one share one vote
system. A company can not issue non-voting equity shares , they are
illegal So, all equity shares must come with full voting rights.
Issue of Share
Procedure of Issue of New Shares:
1. Issue of Prospectus
 Prospectus is considered a catalogue of a company where detail information of the
company is included.
 The prospectus is like an invitation to the public to subscribe to shares of the company.
 A prospectus contains all the information of the company, its financial structure,
previous year balance sheet and profit and loss statement etc.
 It also states the manner in which the capital is collected will be spent. When inviting
deposits from the public at large it is compulsory for a company to issue a prospectus
or a document in a lieu of a prospectus.
2. Receiving Application
 When the prospectus is issued, perspective of investors can now apply for share.
 They must fill out an application and deposit the requisite application money in the
schedule bank mentioned in the prospectus.
3. Allotment of Shares
 Once the minimum subscription is has been reached, the shares can be allotted.]
 Generally, there is always oversubscription of shares, so the allotment is done on pro-
rata bases.
 After allotment of share , the company can collect the share capital as it wishes , in one
go or in installments
 Types of Issue of Share
1. Public Issue:
 Public issue or public offering refers to the issue of share or convertible securities in
the primary market by the company’s promoters, so as to attract new investors for a
subscription.
 In a public issue shares are offered for sale in order to raise capital from the general
public, for which the company issues a prospectus.
2. Initial Public Offer:
 It is called as an IPO, as its name suggests it is the sale of company’s shares to the
public at large for the very first time.
 It is an offer in which an unlisted or privately held company makes a fresh issue of
shares or convertible securities or an already listed company makes an issue of
existing shares of convertible securities for the first time to the public at large.
 In this way unlisted budding company lists its shares in the recognized stock exchange
and goes public to raise funds for running the business.
 Established entities make IPO facilities owners to sell some or all of their ownership to
the public.
Types of Issue of Share
3. Further Public Offer:
 Listed Company which has gone through an IPO offers new or in better words, additional shares to
public for sale, so as to expand their equity base or pay off debts, it is known as Follow-on Public Offer
or Further Public Offer.
4. Right Issue:
 In a right issue share or convertible securities are offered to the existing shareholders at a concessional
rate, on a stipulated date, fixed by the company itself.
 The main aim of issuing right shares is to raise additional funds by offering shares to the existing
equity shareholders, in the proportion of their holdings, rather than making a fresh issue.
5. Composite Issue:
 A composite issue is one in which an already listed company offers shares on the pubic-cum-rights
basis and makes concurrent allotment of the shares.
6. Bonus Share:
 As the name itself, suggests it is the free additional shares distributed to the current shareholders in
the proportion of the fully paid-up equity shares held by them on a particular date.
 The issue of these shares is made out of the company’s free reserves or securities premium account.
Types of Issue of Share
7. Private Placement:
 If a company offers shares to a selected group of investors which can be mutual funds, banks,
insurance companies, pension funds and so forth to raise a capital is called private placement.
8. Preferential Issue:
 Preferential allotment is one which a publicly listed enterprise allots shares to a selected group
of investors such as individuals, venture capitalists, companies on preferential basis.
9. Qualified Institutional Placement (QIP):
 If a listed organization offers equity shares or non-convertible securities to a qualified
institutional buyer includes mutual funds, venture capital fund, public financial institutions,
insurance funds, scheduled commercial banks and pension funds etc.
10. Institutional Placemement Programme (IPP):
 If a publicly listed company makes a follow-on offer of equity shares the promoters offers
share for sale, wherein the shares are allotted to the QIP’s only, with the aim of achieving
minimum public shareholding.
So, the company issues share in order to raise funds from the general public , so as to apply these
funds in business operations. However, they can also be issued to serve other purposes also, as
the money can be utilized in repaying debts, funding a new project, acquiring another company.
Public Issue of Securities
Issues:
1. public Issue-IPO and FPO
2. Right issue (eligible existing shareholder)
3. Bonus Issue (Reward to investors)
4. Private Placement (defined Institutional Placement)
5. Preferential Issue (also known as a private placement)
IPO can be classified into two parts:
6. Initial Public Offering(IPOs)
7. Further Public Offering (FPOs)
 IPO-The Issuer company is required to make detailed disclosures as per SEBoN’s
Regulation .
 IPO- can be made on fixed price \ face value, premium pricing and free pricing
through book-building system (Book building is the process by which an
underwriter attempts to determine the price at which an 
initial public offering (IPO) will be offered). 
Public Issue of Securities
Legal Provisions:
1. Companies Act, 2063
2. Securities Act, 2006 (2063 B.S.)
3. Securities Registration and Issuance Regulation, 2016
(2073 B.S.)
4. Commodity Exchange and Market Act, 2017 (2074
B.S.)
Criteria for an Issue IPO
Chapter 3 rule no. 9 of Securities Registration and Issuance Regulation, 2016 (2073 B.S.), has
incorporated to the criteria of Issuance of IPO
1. IPO shall be not less than 10 percent and not more than 49 percent of the issued capital.
2. Public issuance, it shall be required to have completed one year of business operation (Bank,
Financial Institutions and Insurance Company and required to have to have published its audited
financial report and completed its AGM)
Criteria for an Issue fo IPO
 One year of business of the company should be operated.
 AGM and audit report should be published.
 Approval\license \consent from regulatory bodies.
 Company must proceed to construction works and purchasing procedure through tender.
 Company must have a agreed to maintain loan.
 The share amount have been paid out in full by promoter of the company
 Financial disclosure of construction project.
 In case of Hydropower-It must have concluded power purchase agreement.
 The Company should have been underwritten as prescribed in issuance direction.
Criteria for FPO
According to Securities Registration and Issuance
Regulation, 2016 (2073 B.S.) the criteria of FPO are as
follows:
1. Out of last five years, company should operate in profit at
least for three years having more net worth per share than
paid up capital per share.
2. Company must have passed three years of issuing its IPO.
3. Agenda of FPO should have passed from the AGM of the
company.
4. If issue is to make more than the paid value, mechanism of
forming FPO price.
 Private Placement of Share:
 Private placement is a sale of stock shares or bonds to pre-selected investors
and institutions rather than on the open market.
 It is an alternative to an initial public offering(IPO) for a company seeking to
raise capital expansion.
 Investors invited to participate in private placement program include wealthy
individual investors, banks and other financial institutions, mutual funds,
insurance companies and pension funds.
 The one of the advantage of a private placement is relatively few regulatory
requirements.
 Private placement have become a common way for startups to raise financing,
particularly those in the internet and financial technology sectors.
 A private placement stick investor may also demand a higher percentage of
ownership in the business or a fixed dividend payment per share of stock.
Private Placement of Share:
Features of private placement of share:
 A private placement is a sale of securities to a pre-selected number of
individuals and institutions.
 Securities released for sale only to accredited investors such as investment
banks, pensions and mutual fund.
 Private placements are relatively unregulated compared to sales of securities on
the open market.
 Private sales are now common for startups as they allow the company to obtain
the money they need to grow while delaying or forgoing an IPO.
 There are minimal regulatory requirements and standards for a private
placement even though, like an IPO, it involves the sale of securities.
 Instead of prospectus, private placements are sold using a private placement
memorandum(PPM) and can not be broadly marketed to the general public.
 It specifies that only accredited investors may participate.
Rights Offering (Issue of Share to Existing
Shareholders)
What is a rights offering (Issue)?
 A rights offering (Rights Issue) is a group of rights offered to existing shareholders to
purchase additional stock shares, known as subscription warrants in proportion to
their existing holdings.
 These are considered to be a type of option since it gives a company’s stockholder’s
the right but it is not the obligation to purchase additional shares in the company.
 In a rights offering, the subscription price at which each share may be purchased is
generally discounted relative to the current market price.
 Rights are often transferable, allowing the holders to sell them in the open market.
 Rights offering is effectively an invitation to existing shareholders to purchase
additional new shares in the company. More specifically , this type of issue gives
existing shareholders securities called “right” which gives the shareholders the rights
to purchase new shares at a discount to the market price on a stated future date.
 It gives shareholders of the company a chance to increase their exposure to the stock
at a discount price.
 Features of Rights Offering
 A right issue is an invitation to existing shareholders to purchase additional new
shares in the company.
 In a rights offering, each shareholders receives the right to purchase a pro-rata
allocation of additional share at a specific price and within a specific period.
 Generally, there are two types of rights offering: direct rights offering and
insured or standby rights offering.
 In a direct rights offering there are no standby/backstop purchasers( purchasers
willing to purchase unexercised rights) as the issuer only sales the number of
exercised shares.
 Insured\standby rights offering refers to usually the more expensive type, allow
third parties /backstop purchasers (e.g. investment banks ) to purchase unexpected
rights. The backstop purchasers agree to the purchase prior to the rights offering.
 In some cases, rights issued are not transferable. These are known as non-
renounceable rights. In other case, the beneficiary of a rights issue may sell them
another party.
 Forfeited Share/ Forfeiture of Share:
 Forfeited share is a share in a publicly- traded company that the owner lose s(or forfeits)
by neglecting to live up to any number of purchase requirements.
 A forfeiture may occur if a shareholder fails to pay an owed allotment (call money) or if
he/she sells or transfer his/her shares during a restricted period.
 When share is forfeited, the shareholders no longer owes any remaining balance and
surrenders any potential capital gain on the shares, which automatically revert back to
the ownership of the issuing company.
 Shares in a publicly-traded companies that an owner loses or gives up by failing to
honor certain purchase agreements or restrictions are considered to be
forfeited.
 With forfeited shares, the shareholder no longer owes any remaining balance and is
giving up any possible gain on the shares.
 Forfeited shares revert back to the issuing company, such as when an employee quits
before stock options have fully vested.
 The issuing company can reissue forfeited shares at whatever price they want, typically
the reissue is at a discount to the initial price.
 Capital Reduction
 Capital reduction is the process of decreasing a company’s shareholder equity
through share cancellations and share repurchases, also known as a share buybacks.
 The reduction of capital is done by companies for numerous reasons, including
increasing shareholder value and producing a more efficient capital structure.
 After a capital reduction, the number of shares in the company will decrease by the
reduction amount.
 The act of capital reduction may also be enacted in response to a decline in a
company’s operating profits or a revenue loss that cannot be recovered from a
company’s expected future earnings.
 In some capital reduction, shareholders will receive a cash payment for share
canceled, but in most other situations, there is minimal impact on shareholders.
 Company is required to reduce its share capital using set of specific steps; first
notice must be sent out to creditors of the capital reduction. Second, the
company has to then submit an application for entry of the reduction of share
capital.
Legal Provision Regarding share in Nepalese
Companies Act, 2063
Section 27 of Companies Act, 2063 is related to face value of share capital and application.
The face value of shares of a private company shall be as specified in its AoA .
The face value of shares of a public company shall be fifty rupees as per share or shall be
equivalent to such amount exceeding fifty rupees as is divisible by the figure ten as provided
in the MoA and AoA.
Section 28 of Companies Act, 2063 is concerned with allotment of share. The public
company invites the general public to apply for the subscription of its share and give the
shareholders notice in the format prescribed, within maximum period of three months after
the date of closure of share issue. Provided however, At least fifty percent of the total shares
issued publicly can not be sold failing a guarantee, no shares shall be allotted.
Section 29 of Companies Act, 2063 is related to power to issue share at premium. Any
company fulfilling the following conditions may, with the prior approval of the office, issue
shares at premium
1. The company has been making profits and distributing dividends for three consecutive
years.
2. The company’s net worth exceeds its total liabilities
3. The company’s general meeting had decided to issue shares at a premium.
 Share Certificate
Share certificate is a written document signed on behalf of a corporation that
serves a legal proof of ownership of the number of share indicted. Share certificate
is also referred to stock certificate.
Share certificates are documents issued by companies that sell shares in the
market.
Shareholders receives a certificate as a receipt of his or her purchase and to reflect
ownership of a specified number of shares of the company.
In today’s financial world, physical share certificates are issued only rarely, with
digital record replacing them in most cases.
Share certificate generally acts as a receipt for purchase and ownership of shares in
the company.
Section 33 of Companies Act, 2063 has mentioned to share certificate.
A share certificate in the prescribed format shall be issued to every shareholder in
respect of each share subscribed by him/her, within two months after the
allotment of share.
Share Certificate
The share certificate shall bear the signature of any two out of a director
or chief executive of the company or the company secretary. In case of
private company, as mentioned in AoA or Consensus Agreement.

Key information on a share certificate includes:

1. Certificate number
2. Company name and registration number
3. Shareholder name and address
4. Number of shares owned
5. Classes of share
6. Issue date of shares
7. Amount paid (treated as a paid) on the share.