Company Law

Premendra sahu
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Asst. Professor
 UNIT - 2
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Share Capital
Share: Share is defined as an interest
having a money value and made up of
diverse rights specified under the articles of
association.
Share capital: Share capital means the
capital raised by the company by issue of
shares.
A share is a share in the share capital of
the company including the stock.
Share gives a right to participate in the
profits of the company, or a share in the
assets when the company is going to be
wound up.
features of a share
A share is not a negotiable instrument, but
it is a movable property.
It is also considered to be goods under the
Sale of Goods Act, 1930.
The company has to issue the share
certificate.
It is subject to stamp duty.
The Call on Shares is a demand made for
payment of price of the shares allotted to
the members by the Board of Directors in
accordance with the Articles of Association.
The call may be for full amount or part of it.
Types of shares

1. Equity Shares.
2. Preference Shares.
Equity Shares

They are generally issued and

traded in everyday stock
market. Their returns are not
fixed.
Features of Equity Shares

1. They are permanent in nature.

2. Equity shareholders are the
actual owners of the company
and they bear the highest risk.
3. Equity shares are transferable,
i.e. ownership of equity shares
can be transferred with or
without consideration to other
person.
4. Dividend payable to equity
Types of Equity Shares:

1. Authorized Share Capital: It

is the maximum amount of
capital which can be issued by a
company. It can be increased
from time to time. Some fee is
required to be paid to legal
bodies accompanied with some
formalities.
2. Issued Share Capital: It is
that part of authorized capital
which is offered to investors.
Various Prices of Equity
Shares

1. Par or Face Value: It is the

value of a share of which it is
accounted in books of accounts.
2. Issue Price: It is the price at
which the equity share is
actually offered to the investor.
Normally, the issue price and
face value of a share are same
in the case of new companies.
Preference Shares:

Preference Shares: It has the

qualities of both equity shares
and debentures. As in case of
debentures, fixed rate of
dividends is paid to the
preference shareholder, despite
the profits earned by the
company it is liable to pay
interest to the preference
shareholders.
Features of Preference Shares

1. Preference shares are long-

term source of finance.
2. The dividend payable on
preference shares is generally
higher than debenture interest.
3. Preference shareholders get
fixed rate of dividend
irrespective of the volume of
profit.
4. It is known as hybrid security
 Types of Preference Shares

a. Cumulative and Non-

cumulative Shares: Let us say
that a company was not doing
well for 4 years but suddenly in
the 5th year it started performing
well. Then, the persons having
cumulative shares will get the
interest of past 5 years but the
persons having non-cumulative
shares will get only the interest of
 BASIS FOR
EQUITY SHARES PREFERENCE SHARES
COMPARISON

Meaning Equity shares are the ordinary shares Preference shares are the shares that carry preferential
of the company representing the part rights on the matters of payment of dividend and
ownership of the shareholder in the repayment of capital.
company.

Payment of The dividend is paid after the payment Priority in payment of dividend over equity shareholders.
dividend of all liabilities.

Repayment of In the event of winding up of the In the event of winding up of the company, preference
capital company, equity shares are repaid at shares are repaid before equity shares.
the end.

Rate of dividend Fluctuating Fixed

Redemption No Yes

Voting rights Equity shares carry voting rights. Normally, preference shares do not carry voting rights.
However, in special circumstances, they get voting rights.

Convertibility Equity shares can never be converted. Preference shares can be converted into equity shares.

Arrears of Dividend Equity shareholders have no rights to Preference shareholders generally get the arrears of
get arrears of the dividend for the dividend along with the present year's dividend, if not paid
previous years. in the last previous year, except in the case of non-
cumulative preference shares.
Debentures:

These are also the capital market

instruments which are used to
raise the medium and long term
capital funds in the public.
These are the debt instruments
which acknowledges a loan to
the company and is executed
under the common seal of the
company and the deed shows
the amount of loan and date of
Features of Debentures:-

1.Debenture holders are the

creditors of the company
carrying a fixed rate of interest.
2. Debenture is redeemed after a
fixed period of time.
3. Debentures may be either
secured or unsecured.
4. Interest payable on a debenture
is a charge against profit and
hence it is a tax deductible
Types of debentures:

1. On point of view of record:

a. Registered debentures: These
debentures are registered with
the company and the amount is
payable only to those debentures
holders whose names are
registered with the company.
b. Bearer debentures: These
Types of debentures:
continued
3. On the basis of
Redemption:
a. Redeemable Debentures:
They are issued for a fixed
period and the principle amount
is paid off only at the expiry of
that period or at the maturity.
b. Non-redeemable debentures:
They are matured only after the
liquidation or closing down or
Issue of shares under the
Companies Act2013:-

1) Methods of issue of shares:

A) Private Placement (Section 42
of the Companies Act2013,
Rule 14)
B) Preferential
allotment/Preferential offer
C) Right Issue
D) Conversion of
Provisions of companies act
relating to issue and allotment
of shares

1. A public company must file

a prospectus or statement in
lieu of prospectus, inviting
offers from the public for the
purchase of shares in the
company.

2. After studying the

Continued...

After allotment, the directors can

call upon the shareholders to
pay the full amount due on
shares in one or more
installments as mentioned in the
prospectus. The articles of a
company usually contain
provisions regarding calls. If
there is no such provision in the
Articles, the following provisions
share certificate

A share certificate is a certificate issued to the

members by the company under its common seal
specifying the number of shares held by him and
the amount paid on each share.
According to Section 45 of the Companies Act,
2013 each share of the share capital of the
company shall be distinguished with a distinct
number for its individual identification.
However, such distinction shall not be required,
as per proviso to Section 45, if the shares are
held by a person whose name is entered as holder
of beneficial interest in such share in the records
of a depository.
share certificate

A share certificate is a certificate

issued by a company certifying
that on the date the certificate is
issued a certain person is the
registered owner of shares in
the company.
The key information contained
in the share certificate is:
The name and address of the
shareholder
1.The number of shares held
2.The class of shares
3.the amount paid (or treated as
paid) on those shares.
Share certificates content

(1) The company must issue each

shareholder, free of charge, with
one or more certificates in
respect of the shares which that
shareholder holds.

(2) Every certificate must specify-

(a) in respect of how many
shares, of what class, it is
Share Warrant

Share Warrant: The share warrant is a bearer

document issued by the company under its common
seal. As share warrant is a negotiable instrument, it
is transferred by endorsement and by mere delivery
like any other negotiable instrument.
Conditions for the issue of a
share warrant:
(1) Only public limited companies: Share warrant can be issued by the
public limited companies. It cannot be issued by private companies.
(2) Against share certificate of fully paid up shares: A share warrant is
only issued against share certificate of fully paid up shares.
(3) Provision in the Articles: There must be a provision in the Articles of
Association regarding the issue of share warrant. If there is a
provision, the company can issue a share warrant. If there is no
provision in the Articles, the company cannot issue a share warrant.
(4) Permission of the Central Government: Prior permission from the
Central Government is necessary for the issue of share warrant.
(5) Share warrant not issued originally: Share warrant are not issued
originally at the time of initial issue.
(6) AT the request of the share holder: A share warrant is issued at the
request of the Shareholders / member and not by the company at its
own initiative.
BASIS FOR COMPARISON SHARE CERTIFICATE SHARE WARRANT
Meaning A legal document that indicates the A document which indicates that the bearer of
possession of the shareholder on the the share warrant is entitled to the specified
specified number of shares is known as share number of shares is share warrant.
certificate.

Compulsory Yes No
Issued by All the companies limited by shares Only public limited companies have the right to
irrespective of public or private. issue share warrant.

Negotiable Instrument No Yes

Transfer The transfer of share certificate can be done The transfer of share warrant can be done by
by executing a valid transfer deed. mere hand delivery.

Original Issue Yes No

Amount paid Issued against fully or partly paid up share. Issued only against fully paid up shares

Approval of Central Not Required at all Prior approval of Central Government is

Government for issue required for issuing Share Warrant.

Time Horizon for issue Within 3 months of the allotment of shares. No time limit prescribed.

Provision in Articles of Not Required Required

Association
BORROWING:

Borrow is to receive with an

implied or expressed intention of
returning the same.
Borrowing implies repayment in
some time and under some
circumstances.
BORROWING POWERS OF
COMPANY:-
1. A trading company has an
implied power to borrow money.
2. Non-trading companies must be
expressly authorized to borrow
by their memorandum and
articles of association.
3. A private company is entitled to
borrow immediately after its
incorporation.
4. A public company cannot
TYPES OF BORROWINGs:-

I. Long term borrowings:

II. Medium term borrowings:
III. Short term borrowings:
Security for borrowings:

Security given by a company falls

undertwo categories:
1.FIXED CHARGE
2.FLOATING CHARGE
Borrowing on security:

i. Movable property
ii. Bonds
iii. Promissory notes
iv. Bills of exchange
v. Debentures
vi. Specific part of property
vii.A mortgage of goods
Transfer and Transmission of
shares
AOA provides for the procedure of transfer
of shares. It is a voluntary action of the
shareholder.
It can be made even by a blank transfer In
such cases the transferor only signs the
transfer form without making any other
entries.
In case it is a forged transfer, the
transferors signature is forged on the
share transfer instrument.
Transmission of shares is by operation of
law, e.g. by death, insolvency of the
shareholder etc.
Buy-Back of Securities
The company may purchase its securities
back and it is popularly known as buy back
of shares
To do so , the company has to be
authorized under the AOA.
The company has to comply with the
provisions of the Company law to buy back
its securities.
The listed company has to seek permission
from the SEBI (SERA 1998). Specifically
for the private company etc, the Buy Back
Securities Rules1999 will be applicable.
Dividends
The sharing of profits in the going concerns
and the distribution of the assets after the
winding up can be called as dividends
It will be distributed among the shares
holders
The dividends can be declared and paid
out of:
Current profits
Reserves
Monies provided by the government and
the depreciation as provided by the
companies.
It can be paid after presenting the balance
sheet and profit and loss account in the
AGM