Section 2(84) of the Companies Act, 2013: “share” means a share in the share capital of a company and includes stock. It represents the interest of a shareholder within the company, measured for the needs of liability and dividend. It attaches various rights and liabilities.

Important Definitions:

The word “capital” means the precise amount of cash with which the business of a corporation is commenced. “Share capital” which suggests the quantity collected upon shares issued.

‘Authorized capital’ or ‘nominal capital’ means such capital as is authorized by the memorandum of a company to be the maximum amount of share capital of the company [Sec. 2(8)]

Part of the share capital which is issued to the public is called ‘issued capital’ of the company. ‘Issued capital’ means such capital because the company issues from time to time for subscription [Sec. 2(50)]

That part of the issued capital which is subscribed by the public or allotted to the public is known as ‘subscribed capital’ of the company. As per Sec 2(86), ‘subscribed capital’ means such part of the capital which is for the time being subscribed by the members of a company. Minimum subscription requirement presently is ninety percent of the issued capital.

The actual amount received by the corporate from the subscribed capital is named the ‘paid-up capital’ of the corporate .

Reserved capital: this is often the portion of subscribed capital which has not been called up except within the event and for the needs of completing of a corporation .

Bonus shares: A bonus share is an accretion. A bonus share is issued when a company capitalizes its profits by transferring an amount equal to the face value of the share from its reserves to the nominal capital1. Section 63 provides that a company may issue bonus shares to its members in any manner whatsoever, out of its free reserves or amount lying in the securities premium account or capital redemption reserve.

Sweat Equity Shares: equity shares are equity shares issued by the corporate at a reduction or for consideration aside from cash. They are issued only to directors or employees of the company for providing technical know-how to the company or making available intellectual property rights to the company or for any value addition to company.

SHARE CAPITAL

Chapter IV of the CA, 2013 deals with share capital. S. 43 deals with sorts of share capital and it provides that the share capital of a corporation limited by shares are often of two types, namely, equity share capital and preference share capital.

Equity share capital:

Equity Share Capital (Sec 43)

Equity share capital means all share capital which isn’t preference share capital for any company limited by shares. According to section 43 of the said Act, equity share capital could also be –

– With voting rights or

– With differential rights on dividend, voting or otherwise in accordance with such rules as could also be prescribed.

This is the ordinary share capital of the company and can be of two types:

i. equity share capital with voting rights, or

ii. equity share capital with differential rights on dividend, voting or otherwise in accordance with prescribed rules.

Preference share capital:

It means a part of the issued share capital of the corporate which either carries or would carry a preferential right with reference to payment of dividend and a preferential right of repayment in case of winding up or repayment of capital. According to section 55 of the Act, a corporation limited by shares cannot issue any preferred stock which are irredeemable. Redemption are often made only from company’s profits available for dividend or out of the proceeds of a fresh issue made for this purpose. However a corporation limited by shares may, if so authorized by its articles, issue preferred stock which are susceptible to be redeemed within a period not exceeding twenty years from the date of their issue.

Classes of Preference Shares with reference to:

Dividend

1. Cumulative Preference Shares: Those Preference Shares which carry right to receive arrears of dividend before the company makes payment to Equity Shareholders.

2. Non- Cumulative Preference Shares: Those shares which do not carry any rights for receiving arrears of the dividend.

Participation in Surplus Profits

1. Participating Preference Shares: The Articles of Association of a corporation may provide that after the corporate pays the dividend to the Equity Shareholders, the holders of preferred stock will also have a right to participate in the remaining profits.

2. Non-Participating preferred stock : preferred stock which don’t carry the proper to participate within the profits remaining after Equity Shareholders are paid are called Non-Participating Preference Shares.

Convertibility

1. Convertible preferred stock : Those preferred stock which have the proper to be converted into Equity Shares are called Convertible Preference Shares.

2. Non-Convertible preferred stock : Non-Convertible Preference Shares don’t have the proper to be converted into Equity Shares.

Redemption

1. Redeemable preferred stock : Redeemable preferred stock are those Preference Shares which are redeemed by the corporate at a selected time (not exceeding 20 years from the date of issue) for the repayment or earlier. We call this repayment of the amount as Redemption.

2. Irredeemable preferred stock : the quantity returned by the corporate at the time of finish up to the holders of such shares is named Irredeemable Preference Shares.