A PROJECT ON

SHARES

AKSHI TANDON
5TH semester
Ballb (hons)

Faculty Name-:

RASHMI NAGPAL

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Inde x
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Shar es and Natur e 3-

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Shar es All ot ment

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Shar es Ce r tif ic ate

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 SHARES
DEFINITIONS
The Companies Act defines a share as “Share in the Share Capital of the
company, and includes stock except where a distinction between stock
and share is expressed.”

According to J.Farwell a share is “ the interest of a shareholder

in a company measured by the sum of money, for the purpose of
liability in the first place and of interest in the second

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Meaning and nature of shares:
1) The share capital of a company is divided into a number of indivisible
units of a fixed amount. These indivisible units are known as shares.
10,000 shares of Rs.10 each= 1, 00,000 Rs.
2) According to sec 2 clause 46 “A share is a share in the share capital of
the company and includes stock except where a distinction between stock
and share is expressed or implied.
3) According to Supreme Court, a share is right to participate in the profits
made by the company, while it is a going concern and decreases a
dividend and in the assets of the company when it is wound up.
4) According to the sale of goods act the term goods includes every kind of
movable property including stock and shares.
5) A share is not a negotiable instrument.

STOCKS:
Share clubbed together is known as stock

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When you issue share certificate then it is STOCKS

Distinction between Share and Stock

Share Stock
1) It has the nominal value or face 1) It has no nominal value or face
value value
2) It has the distinctive number 2) It has no distinctive number.
3) Shares can be originally issued by a 3) A company cannot originally issue
company. stock first shares will be issued, the
shares are fully paid up then can be
converted into stock.
4. Shares may be either fully paid up 4. Stock is always fully paid up and it
or paid up. cannot be partly paid up.
5. Share is an indivisible unit therefore 5. Stock may be transferred in any
it cannot be transferred in fraction and fractions.
it can be transferred only as a whole.
6. Shares of the same class are of 6. Stock may be of different
equal denomination. denomination.

TYPES OF SHARES
• Before passing Companies Act, 1956, shares used to be in three types
• Ordinary Shares

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 • Preference Shares
• Deferred Shares
• After Companies Act , companies issued only two types of shares
• Preference Shares
• Equity Shares

Types of preference shares:

In addition to the aforesaid two rights, a preference shares may carry
some other rights. On the basis of additional rights, preference shares can
be classified as follows:
Cumulative Preference Shares: Cumulative preference shares are
those shares on which the amount of divided if not paid in any
year, due to loss or inadequate profits, then such unpaid divided
will accumulate and will be paid in the subsequent years before
any divided is paid to the equity share holders. Preference shares
are always deemed to be cumulative unless any express provision
is mentioned in the Articles.

1) Non-Cumulative Preference Shares: Non-cumulative preference

shares are those shares on which arrear of dividend do not
accumulate. Therefore if divided is not paid on these shares in any
year, the right receive the dividend lapses and as such, the arrear of
divided is not paid out of the profits of the subsequent years.

2) Participating Preference Shares: Participation preference shares are

those shares, which, in addition to the basic preferential rights, also
carry one or more of the following rights:

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 (a) To receive dividend, out of surplus profit left after paying the
dividend to equity shareholders.
(b) To have share in surplus assets, which remains after the entire
capital has been paid on winding up of the company.

4) Non-Participating Preference Shares: Non-participation preference

shares are those shares, which do not have the following rights:
(a) To receive dividend, out of surplus profit left after paying the
dividend to equity shareholders.
(b) To have share in surplus assets, which remains after the entire
capital has been paid on winding up of the company.
Preference shares are always deemed to be non-participating, if the
Article of the company is silent.
5) Convertible Preference Shares: Convertible preference shares are
those shares, which can be converted into equity shares on or after
the specified date according to terms mentioned in the prospectus.

6) Non-Convertible Preference Shares: Non-convertible preference

shares, which cannot be converted into equity shares. Preference
shares are always being to be non-convertible, if the Article of the
company is silent.

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7) Redeemable Preference Shares: Redeemable preference shares are
those shares which can be redeemed by the company on or after the
certain date after giving the prescribed notice. These shares are
redeemed in accordance with the terms and sec. 80 of the
Company’s Act 1956.

Irredeemable Preference Shares: Irredeemable preference shares are

those shares, which cannot be redeemed by the company during its life
time, in other words it can be said that these shares can only be
redeemed by the company at the time of winding up. But according to
the sec. 80 (5A) of the Company’s (Amendment) Act 1988 no
company can issue irredeemable preference shares
Equity shares:
According to section 85 (2), of Companies Act, 1956, Equity share can be
defined as the share, which is not preference shares. In other words equity shares
are those shares, which do not have the following preferential rights:
(a) Preference of dividend over others.
(b) Preference for repayment of capital over others at the time of winding up of
the company.

These shares are also known as ‘Risk Capital’, because they get dividend on the
balance of profit if any, left after payment of dividend on preference shares and
also at the time of winding up of the company, they are paid from the balance
asset left after payment of other liabilities and preference share capital. Apart
from this they have to claim dividend only, if the company in its A. G. M.
declares the dividend. The rate of dividend on such shares is not pre-determined,
but it depends on the profit earned by the company.

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The equity shareholders have the right to vote on each and every resolution
placed before the company and the holders of these shares are the real owners of
the company.
Distinction between Preference Shares and Equity Shares:
Basis of difference Preference Share Equity Share
Rate of dividend The rate of dividend on The rate of dividend on
preference share is fixed. equity share is changed
from year to year
depending upon the
availability of profits.
Payment of dividend They have a right to Dividend on equity shares
receive dividend before is paid, after any
any dividend is paid on dividend is paid on
equity shares. preference shares.
Participation in Preference shareholders Equity shareholders are
management are not entitled to entitled to participate in
participate in management.
management.
Winding up On the winding up, they In this case, they have
have a right to return of been paid only when
capital ahead (before) of preferences capital is paid
the capital returned on in full.
equity shares.
Arrears of dividend If dividend is not paid on In case of equity shares,
these shares in any year, dividend cannot
the arrear of dividend accumulate.
may accumulate.
Voting rights Preference shareholders Equity shareholders enjoy
do not have any voting voting rights.
rights.

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ALLOTMENT OF SHARES
Offers are made on application forms supplied by the
company. When an application is accepted, it is an
allotment.
“Allotment” is generally neither more nor less than the
acceptance by the company of the offer to take shares.
It is an appropriation out by the directors of shares to a
particular person. A valid allotment has to comply with the
requirements of the Act and the principles
of the law of contract relating to acceptance of offers.

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Allotment of Shares:
1) According to the Supreme Court the term allotment refer to the
appropriated out of the previously unappropraited of a company of a certain
no. of shares.
2) Reissue of forfeited shares is not the allotment of shares because it is not an
appropriation out of previously unappropriated capital.

Process of allotment in terms of contract Act:

1. Company issuing prospectus and share application form- invitation to offer.
2. Applicants submitting completed application forms along with money-offer.
3. Company allotting shares-Acceptance.
4. Relationship between company and shareholders/member-Contract.

Allotment of shares

General principles Statutory provisions

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 Non-Compliance Non-
Compliance
Allotment Invalid Irregular allotment
Valid Void
Voidable

General Principles relating to the allotment

1) The allotment must be made only by a proper authorized either by B.O.D or
duly authorized by the committee of directors.
2) The allotment must be made only on the basis of a share application form in
writing. It cannot be made on an oral request or without application form.
3) The allotment must not be made in contravention with any other law
Ex1: Allotment to a minor is void.
Ex2: Allotment to a person against the FEMA is void.
4) The allotment must be made within a reasonable time. What is reasonable
time depends on the facts and circumstances. Case:
Murugappa Chattier Vs Pudukotai ceramics limited.
It was held that an allotment will be valid even though there is an
undue delay provided it is accepted by the allotee.
The allotment must be communicated in writing by the
company, by way of passing a letter of allotment.
Re: Universal Banking Corporation
5)The allotment of shares must be absolute and unconditional. However the
share application form may contain prorata clause by which the allotee will
allot a lesser no. of shares.
6)The share application form can be revoked and withdrawn before the
allotment of shares.

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 Relevant dates for Statutory Provisions:
1) Date of Publishing of Prospectus:
This appears on the face of the prospectus itself. If it the date of which
is printed on prospectus.
2) Date of issue of Prospectus:
This is the date of circulation among the public on the date of
advertisement in the newspaper.
3) Date of opening of issue:
This is the date on which the company receives completed share
application forms.
4) Date of closing or closure of issue:
This is the last date for the submission of completed application forms.
5) Date of opening of subscription list:
This is the date of first allotment of shares.

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6) Date of closing/closure of subscription List:
This is the last date for the completion of allotment

STATUTORY RESTRICTIONS ON ALLOTMENT

• Minimum subscription and application money
[s.69]: It means the amount which is, in the estimate of the directors, enough to
meet the needs like purchase price of any property partly or wholly, preliminary
expenses, and working capital.
• Statement of lieu of prospectus
[s.70]: Where prospectus has not been issued, no allotment shall be made unless
at least three days before a statement in lieu of prospectus has
been filled with the register.
• Opening of subscription list
[s.72]:Shares can not be allotted at once after the issue of the prospectus . No
allotment shall be done until the beginning of the 5th day from the date of the
issue of the prospectus.

SHARES TO BE DEALT IN ON STOCK

EXCHANGE [S.73] : Every company intending to offer shares to the public by
the issue of a prospectus has to make an application before the issue to anyne or
more of the Stock Exchanges for permission for the shares to be
dealt with at Stock Exchange. An allotment shall be void if the permission has
not been granted.
• over-subscribed
prospectus [s.73(2-A)] : where the permission of a stock

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exchange has been granted and,therefore , the allotment completed valid, the
prospectus being oversubscribed portion of the money received must be sent back
to the applications forthwith.

CERTIFICATE OF SHARES
• An allottee of shares is entitled to have from the
company a document called share certificate, clarifying
that he is the holder of the specified number of shares
or debentures or debenture-stock is obliged to deliver
to the allottee a certificate of shares within three
months of allotment

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 Share and Share Certificate:
1) A company will allot shares to the share holder but will issue a fresh
certificate.
2) Share is a movable property transferable in the manner provided in the
articles.
Share certificate is the certificate issued under the common seal of
the company the no. of shares held by the company.
3) Share represents the movable property.
Share certificate is the prima facie evidence of title. It enables a share
holder to show his shares and sell his shares

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 Share certificate:
(sec 113)
It is a document issued by a company to its share holders certifying the no. of
shares hold by them.
1) Every company must issue a share certificate within 3 months from the date
of receipt of application for transfer.
2) Under the depository system the company send an intimation to the
shareholder immediately after the allotment.
3) According to sec 84, a share certificate is issued under the common seal of
the company.
4) Estopell as to title:
A share certificate once issued binds the company. It is a declaration by

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 the company to all the world, that a person whose names the share certificate.
Case: Dixon vs. Kennaway
5) Mr. D applied for 300 shares in a company. A clerk who actually had no
shares ex`ecuted a transfer deed in favor of Mr. D. The company issued a
share certificate in favor of Mrs. D for 300 shares without any proper
verification.
6) Held, The company liable to pay damages to Mrs. D that it could not allotted
any share.
7) Estoppel as to payment: If
the share certificate states that the shares are fully paid. The company later
denied and the state that the shares are not fully paid up.
Case: Bloomenthal Vs Ford.
8) For issuing a share certificate a board resolution is necessary also a letter of
allotment must be surrendered.
Surrendering the letter of allotment is not applicable in the case of
transfer of shares.
9) Every share certificate may contain common seal and the signature of the
company secretary and two directors.
10)In the following two circumstances the company will issue duplicate
certificates to the share certificate:

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a. When the original certificate is mutilated (or) defaced (or) torn and is
surrendered to the company.
b. When the original certificate is stoled, destroyed and FIR and
advertisement is given in the news paper is given as directors by the
company.

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