MODULE 3

SHARE CAPITAL AND SHARES

Share Capital-Shares- Kinds of shares – Public issues of shares - Book building -
allotment of shares - Irregular allotment - Issue prices of shares – Listing of shares –
Employees stock option scheme. Sweat equity shares - Right shares – Bonus shares –
Shares with differential rights – Share certificate and share warrant – Calls –
Forfeiture – Surrender of shares – Buy back of shares – Dematerialization and
rematerialisation of shares – transfer and transmission of shares – Transfer under
depository system.

Share
The capital of a company is divided into small units. Those units are called share.
Stock
A set of shares put together in a bundle is called stock.
Shares Stock
It has nominal value It has no nominal value
It has distinctive numbers It has no such number
It is partly or fully paid up It is always fully paid up
It can be issued directly It cannot be issued directly
It transferred in multiple of one It transferred in fractions

Share capital
The term ‘share capital' refers to the amount of capital raised (or to be raised) by a company
through the issue of shares. It generally means the money subscribed pursuit to memorandum
of association of the company. Share capital refers to funds raised by a company to issue
shares to the general public.
Types of capital
 Registered Capital
The capital with which a company is registered is called registered capital. It is also known
as nominal or authorised capital. Authorized capital is the sum stated in the capital clause
of the memorandum of association as the capital of a company. It is the maximum amount
of share capital, which the company is authorized by its memorandum of association to
raise through the issue of shares.
 Issued Capital
It is a part of authorised capital which is issued to the public for subscription. The part of
the authorized capital which is issued or offered, for the time being, to the public for
subscription is, usually, called the issued capital.
 Subscribed Capital
It is a part of issued capital which is subscribed by the public.
 Called up Capital
It is a part of subscribed capital which the directors have called from the shareholders.
  Paid up capital
It is a part of called up capital which is actually paid up by the shareholders.
 Reserve capital
It is the amount of the capital which is not called by the company except in the event of
winding up.
Kinds of shares
A public company can issue only Two types of shares, viz.,
(1) Preference shares.
(2) Equity shares.

1. Preference shares

Preference shares are shares, which have preferential rights (i.e., first priority over other
kinds of shares) in respect of payment of dividend during the existence of the company, and
also in respect of repayment or refund of share capital in the event of the winding up of the
company.
Types of preference shares
1.Cumulative preference shares: The holders of cumulative preference share are
entitled to receive a fixed percentage of dividends before anything is given, tot other
classes of shareholders
2.Non-cumulative preference shares: Noncumulative preference shares are entitled to a
fixed rate of dividend in the first instance (i.e., before anything is given to other types of
shareholders).
3.Participating preference share: The holders of these shares, in addition to a fixed
percentage of dividends, are also entitled to participate in the surplus profits of the
company along with the equity shareholders
4.Non-participating preference share: The holders of non-participating preference shares
will get only a fixed rate of dividend, of course, in the first instance (i.e., before any
dividend is paid to equity shareholders). But they are not entitled to participate in the
surplus profits of the company.
5.Convertible preference shares: The holders of convertible preference shares are
given the rights to convert their shares into equity shares later on (i.e., after a certain
period).
6.Non-convertible preference share: The holders of non-convertible preference share
are not given the right to convert their shares into equity shares later on.
7.Redeemable preference shares: Redeemable preference shares are those preference
shares, which can be redeemed (i.e., returned or paid back) even during the existence
of the company.
8.Irredeemable preference shares: Irredeemable preference shares are those preference
share, which are not (i.e. Refundable) until the company is wound up.
 Merits of preference shares

1. Fixed Dividend: Preference shareholders are entitled to a fixed dividend, which

provides a predictable income stream, making these shares appealing to income-
focused investors.
2. Priority Over Common Shares: In the event of liquidation, preference shareholders
have a higher claim on assets than common shareholders, though they are still behind
debt holders. This reduces their risk compared to common stockholders.
3. Dividend Arrears Protection: In many cases, if the company fails to pay dividends
in any given year, these dividends accumulate (cumulative preference shares) and
must be paid before common shareholders can receive any dividends.
4. Less Volatility: Preference shares generally exhibit less price volatility than common
shares because their value is more closely tied to the fixed dividend rather than the
company's market performance.
5. Convertible Option: Some preference shares are convertible into common shares at a
predetermined rate. This feature allows investors to benefit from potential upside
appreciation of common shares if the company performs well.
6. Priority in Dividends: Preference shares have the right to receive dividends before
common shares, which makes them a safer choice for those looking for steady returns.

Demerits of preference shares

1. Limited Capital Appreciation: Preference shares typically do not appreciate in value

as much as common shares, since their primary feature is a fixed dividend rather than
capital gains. Investors may miss out on the higher growth potential offered by
common stock.
2. No Voting Rights: Most preference shares do not carry voting rights, meaning
investors have no say in the company's management or decisions. This limits their
influence on corporate governance, unlike common shareholders who can vote on
important matters such as mergers or electing the board of directors.
3. Fixed Dividends, No Participation in Upside: While preference shares offer a fixed
dividend, they do not provide the potential for increased payouts if the company
performs exceptionally well. Common shareholders may receive higher dividends in
such cases, but preference shareholders are capped at their fixed rate.
4. Dividend Payment Risk: Although dividends on preference shares are typically
prioritized over common stock dividends, they are still not guaranteed. If the company
faces financial difficulty, it may suspend or defer dividend payments, especially for
non-cumulative preference shares.
5. Potential for Callable Shares: Some preference shares are "callable," meaning the
issuing company has the right to repurchase them at a predetermined price. This could
be disadvantageous to investors if the company decides to buy back shares at an
inopportune time, potentially depriving the investor of expected dividends or future
capital appreciation.

2.Equity shares
Equity shares are those, which are not preference shares. In other words, these are shares,
which do not enjoy any preferential right either in respect of payment of dividend or in
respect of the repayment of capital at the time of the winding up of the company. These
shares are known as equity shares, as they are the 'ownership shares' conferring the
ownership of the company on the holders of these shares, i.e., the holders of these shares
are the real owners of the company.
Merits of equity shares

 Capital Appreciation Potential: Equity shares offer the potential for significant capital
gains. As the company grows and becomes more profitable, the value of its shares can
increase, allowing shareholders to sell their shares at a higher price than what they paid.

 Dividend Income: While dividends are not guaranteed, many companies pay dividends to
shareholders as a share of the company's profits. This provides an opportunity for investors to
earn income in addition to potential capital gains.

 Voting Rights: Equity shareholders typically have the right to vote at annual general
meetings (AGMs) and on significant corporate matters such as mergers, acquisitions, and the
election of the board of directors. This gives them a say in the company's governance.

 Ownership and Control: As part-owners of the company, equity shareholders have a direct
stake in the company's success. The more shares a shareholder owns, the greater their
influence on the company's operations (via voting power).

 Liquidity: Shares of publicly traded companies are usually highly liquid, meaning they can
be bought or sold quickly in the stock market. This provides flexibility for investors to enter
or exit their investments at relatively low cost.

 Diversification: By investing in a variety of equity shares from different sectors and

regions, investors can diversify their portfolios, spreading risk across different assets. This
reduces the potential impact of poor performance from any single investment.

 Potential for Long-Term Growth: Historically, equity shares have provided higher returns
over the long term compared to other asset classes like bonds or savings accounts. Companies
that reinvest profits can experience substantial growth, benefiting shareholders in the long
run.

 Tax Advantages: In some jurisdictions, the tax treatment of capital gains from equity
investments may be more favorable than other forms of income, such as interest from bonds.
Additionally, qualified dividends may also be taxed at a lower rate.

Demerits of Equity Shares

 Higher Risk and Volatility: Equity shares are generally more volatile than other forms of
investment, such as debt securities or preference shares. The value of equity shares can
fluctuate widely based on company performance, market conditions, and investor sentiment,
which can result in significant losses.

 No Guaranteed Dividends: Unlike preference shares or debt instruments, equity

shareholders are not guaranteed any dividends. Companies may decide to reinvest profits
rather than distribute them, or they may reduce or omit dividend payments in difficult
financial periods.
 Last Claim on Assets: In the event of liquidation, equity shareholders are the last to receive
any proceeds after creditors and preference shareholders are paid. As a result, equity holders
may not recover their full investment if the company goes bankrupt or faces financial
distress.

 Dilution of Ownership: If a company issues more shares (e.g., through a new stock
offering), the ownership percentage of existing shareholders can be diluted, which may
reduce their influence in the company and diminish the value of their holdings.

 Market Sentiment Impact: The value of equity shares is often influenced by market
sentiment, which can sometimes be irrational or based on factors unrelated to the company's
actual performance. This can lead to significant price fluctuations and investor uncertainty.

 Exposure to Management Decisions: Equity shareholders depend on the company’s

management for decision-making. Poor management decisions, ineffective strategies, or
mismanagement can harm the company's profitability and the value of shareholders’
investments.

 Limited Control for Small Shareholders: Although equity shareholders have voting rights,
individual or small shareholders often have limited influence over corporate governance,
especially in large companies where institutional investors may hold significant voting
power.

Differences between preference shares and equity shares

Difference Equity Shares Preference Shares

Represent ownership in Represent claim over company’s profits
Significance
the company and assets
Returns Capital appreciation Regular dividend income
Payment of Dividend Least priority High priority
Varies based on the
Dividend Rate The rate is fixed
earnings
Company needs to issue There is no fixed requirement to issue
Issue Mandate
equity share capital preference share capital
Bonus Shares Eligible Not eligible
Voting Rights Yes No
Participation in
Managerial Yes No
Decisions
Redeemable No Yes
Conversion Not possible Possible
Companies must issue
Compulsion Optional to issue
equity share capital
 Investment Lower investment High investment
Risk appetite High risk Low risk

Raising of capital/ Issue of shares

Companies limited by shares have to issue shares to raise the necessary capital for their
operations. Issue of shares made in three ways:
1. Private placement
2. Right issue
3. Public issue
Private placement
Private placement is the issue of securities of a company direct to one investor or small
group of investors. It refers to the sale of securities (such as equity or debt) directly to a
select group of investors, rather than through a public offering on the stock exchange. This
method is often used by companies to raise capital without the extensive regulatory
requirements and publicity associated with public offerings.
Right issue
It is an issue of shares to the existing shareholders in proportion to their existing
shareholding. It is a way for companies to raise additional capital by offering existing
shareholders the opportunity to purchase new shares at a discounted price, typically in
proportion to their existing holdings. This mechanism allows companies to raise funds
without the need for public offerings, while giving current shareholders the chance to
maintain their proportional ownership in the company.
Public issue of shares
Public issue means selling of shares or securities to public by issue of prospectus. That is
Public Issue is the process of selling and marketing of securities for subscription by public
by issue of prospectus. The Issuer has to comply with the provisions of the SEBI (ICDR)
regulations, 2009 along with the provisions of the Companies Act, 2013 and the SCR Act,
1956 and the listing agreement.
Types of public issue
a) Initial public offer (IPO)
This is a method of raising securities in which a company sells shares or stocks to general
public for first time.
b) Offer for sales
In this method shares are offered to public through the intermediaries.
Procedure for issuing new shares:
 Approval and filing of prospectus.
 Issue of prospectus.
 Receiving of application.
 Scrutiny of application.
 Sorting of application.
 Closure of application list.
 Record of application.
Procedures Required for Public Issue of Shares
1. Approval and filing of prospectus: A draft copy of the prospectus, approved by the
directors, who put their dated signature on it must be filed with the Registrar, before
issuing to the public.
2. Publicity and issue of prospectus: Within 90 days of delivery of the prospectus to the
Registrar, the prospectus should be issued to the public. Copies of the prospectus will be
made available to the company's bankers and an advertisement in relation to the issue of
prospectus will be given to the press. On the advertised date and time, the subscription list
will be opened.
3. Receiving of application: The investors are directed to send their application duly filled
in along with application money which shall not be less than 5% of the nominal amount of
the security or such other percentage or amount, as may be specified by the SEBI to the
company's bankers. The bank will collect the amount and credit it to a special account
known as the share or Debenture Application Account.
4. Scrutiny of application: Examining the application form is another step in the issue
procedure. Irregular and incomplete forms may be rejected if there is oversubscription.
5. Sorting of applications: Application forms may be re-arranged according to the
alphabetical order of the names of applicant, or according to the number of shares applied
for.
6. Closure of application list: The application lists will be closed at the predetermined time
or when the issue is sufficiently over-subscribed. Public notice will be given to that effect
to the press and the Stock Exchange.
7. Recording of application: Entries of application should be made in the application and
allotment sheets. And the subscribers to the memorandum will be entered first. All entries
on the sheet must be finally checked with the application forms and with the Bank Pass
Book or Banker's list.
Book Building
Book building is a process used in investment banking and finance to determine the price of
an initial public offering (IPO) or a follow-on public offering. It involves collecting bids from
institutional investors and other qualified investors to gauge demand for the securities being
offered. It is an international practice which refers to collecting orders from investment
bankers as large investors based on an inductive price range.

Building Process
1. Preliminary prospectus: The investment bank prepares a preliminary prospectus, which
outlines the terms of the offering, including the price range.
2. Roadshow: The investment bank and issuer conduct a roadshow to market the offering to
institutional investors.
3. Bid collection: Institutional investors submit bids indicating the number of shares they
wish to purchase and the price they are willing to pay.
4. Book building: The investment bank collects and records the bids in a "book" to gauge
demand and determine the optimal price.
Allotment of shares
Allotment is the acceptance of the offer by the company. Allotment is a binding
contract between the company and the prospective shareholders. The rules and
regulations with regard to the allotment are as follows
1. General principles regarding allotment
2. Statutory restrictions on allotment.
1. General principles regarding allotment
With regard to the allotment of shares the following general principles should
be observed in addition to the provisions of the companies act.
i - Allotted by proper authority: Allotment should be made by proper authority,
ie, the board of directors of the company or a committee authorized to allot shares on
behalf of the board. An allotment made without proper authority will be invalid.
ii - allotment against application only: No valid allotment can be made on an oral
request. Section 41 provides that for becoming a member, a person should agree in
writing. Thus, no allotment can be made without a written application for allotment.
iii - Reasonable time: Allotment must be made within a reasonable period of time,
otherwise, the application lapses. Reasonable time is a question of facts depending on
circumstances of the case. With regard to reasonable time section 6 of the contract act
becomes applicable
iv – Communication: As per the contract act, for a legal offer and acceptance
communication is essential. The allotment is an acceptance and be communicated to
the applicant.
v - Absolute and unconditional: The allotment must be absolute and unconditional,
that means it must be made on the same terms as stated in the application. The legal rules
regarding offer and acceptance are applicable in allotment also.
2. Statutory restrictions on allotment of shares
i) a prospectus must be issued and a copy of the same should be filed with the
registrar. The company cannot allot the shares immediately after issuing the prospectus.
No allotment can be made until the beginning of the fifth day from the date of issue of
prospectus.
ii) Minimum subscription: no company can proceed to allot shares to the public
until the minimum subscription (which is usually 90% of the issue amount) has been
 subscribed, and the sum payable on applications for it has been received by the
company in cash
iii) Statement in lieu of prospectus: where a company having a share capital
does not issue a prospectus, it can allot shares only after submitting statement in lieu
of prospectus for registration.
Irregular allotment
An allotment of shares shall be termed irregular if it is made without fulfilling the
conditions precedent to a regular allotment. The allotment of shares will irregular in
the following cases:
1) Where an allotment is made without receiving the minimum subscription.
1) Where an allotment is made without receiving at-least five per cent of the nominal
value of shares as application money.
2) Where an allotment is made without depositing the application money in a scheduled
bank.
3) in the case of a company which does not invite public to subscribe its shares, if the
allotment is made without filing with the registrar the 'statement in lieu of prospectus'
at least three days before the first allotment of shares.
4) Where the company fails to apply for listing of its shares in one or more
recognized stock exchanges before the tenth day after the first issue of
prospectus
5) Where the allotment is made before the expiry of the fifth day after the date
of issue of the prospectus.
Allotment procedure
The directors of the company take decision regarding allotment. Allotment is an
act of the directors by accepting the offer of an applicant to purchase the shares of the
company. The decision is taken after complying with the provisions of the act by
passing a resolution at the board meeting.
1.Letter of regret
These letters are sent to those applicants to whom shares have not been allotted.
Such a letter will contain the regret of the directors for their inability to allot shares.
A cheque also will be enclosed with the letter for the refund of the application
money.
2.Splitting of allotment
When a large block of shares has been allotted to a single person, the company
at his request split or divide the original allotment letter into a number of small
allotment letters. This facility is usually enjoyed by speculators of shares who are
interested to sell part of their holdings.
3.Renunciation of allotment
To renounce means to give up. An allottee is permitted under the act to give up the right
over shares allotted to him either wholly or partly and transfer allotment made to him to
some other person. This is known as renunciation of allotment.
Issue Price of shares or terms of issue of shares
Generally, shares of a company are issued at par, at premium and at discount.
a) Issue of shares at par: When shares are issued by a company to the public at a price
equal to their face value (i.e., the price written on the face of the share certificates), they
are said to be issued at par.
b) Issue of shares at a premium: (section 78) When a company finds at there is a
great demand for its shares, it may issue shares at a premium. Issue of shares at a
premium means the issue of shares by a company at a price higher than the face value
of the shares. (The difference between the issue price, i.e., the price at which the
shares are issued, and the face value of the shares is called share premium) the share
premium may be utilized for the following purposes: -
1. to issue fully paid bonus shares to the members
2. To write off preliminary expenses of the company.
3. To write off expenses or commissions paid or discounts allowed on an
issue of shares or debentures.
4. To provide for the premium payable on redemption of any redeemable
preference shares or debentures.
c) Issue of shares at a discount: section (79) when a company wants to raise further
capital at a time when its shares are not demanded, and so, quoted in the market below
par, it may issue shares at a discount. Issue of shares at a discount means the issue of
shares at a price less than the face value of the shares. (The differences between the face
value and the issue price of the shares are the discount allowed on the shares. The
discount allowed is a capital loss to the company.). Section (79) of the companies act
lays down that a company may issue shares at a discount, if the following conditions
are satisfied:
* The issue of shares at discount must be of a class of shares already issued.
* At least one year have lapsed at the date of the issue from the date of
commencement of business by the company.
* The issue is authorized by a resolution (ordinary) in the general meeting which
must state the maximum rate of discount.
* The resolution shall specify the maximum rate of discount which shall not exceed 10%
* The resolution shall be sanctioned by the central government.
* Shares are issued within two months of the date on which the issue is sanctioned
by the central government
Listing of securities/shares
Listing means the enrolment of a name of company in an official list maintained in
the stock exchanges. These securities are only allowed to be traded in stock exchanges.
Listing is compulsory in the case of companies which intend to offer securities for
public issue through the issue of prospectus.
 Objectives of listing
 Creation of ready marketability, liquidity to securities.
 Mobilize savings for economic development
 Protect interest of investors
 Ensure control of trading
Advantages of listing
1. High liquidity: Listing ensures liquidity to the public and free transferability of securities
2. Helps to know the performance: The investing public gets periodic reports of the listed
companies, which help them to know the performance of the company.
3. Gets regular information: The transaction of the listed companies is reported in dail
newspapers and the investing public gets regular information of the worth of the securities
4. Tax advantages: The listed companies are treated as widely held companies under the
Income Tax Act and all the advantages available to a widely held company are available
the listed company under the Income Tax Act.
5. Facilitates buying and selling: Listing helps easy buying and selling of securities.
6. Helps to raise finance: Listing of securities adds prestige to the company. It enables the
company to raise funds easily.
7. Protects the investors: Listed companies are required to disclose vital information abo
their assets, capital structure, profit, dividend policy, allotment procedure etc. Hence listin
aims at the protection of the investors.
8. Fair price: Investors get a fair price for their investment when they sell listed shares.
9.Good Collateral security: it can be used as collateral securities for obtaining loans.
Limitations of listing
1. Speculation: Listing of securities can bring wide fluctuations in the value of shares in the
market. It provides ample scope for speculators. They will manipulate the values of secu
rities and make unscrupulous profit. It is detrimental to the interests of the society.
2. No regular price quoting: Listing does not guarantee the regular and continuous price
quotations of securities in the market. Most of the securities, which are listed in the stock
exchanges, are not quoted or quoted irregularly. E.g: certain categories of group B shares are
never quoted in the stock exchange.
3. Large amount of listing fees: The listing and renewal fees charged by the stock exchanges
depend upon the status of these exchanges and paid up capital of the company. There is no
unanimity. Volumes of trade and price quotations are not considered while charging fees.
4. Information to competitors: For listing the securities the company is required to disclose
certain vital information like corporate performance, remuneration to managerial personnel
etc. There is every possibility of using this information by the competitors, which is
detrimental to the interests of the company.
Employees’ Stock Option Plan (ESOP)
It is a scheme under which the company gives option to the whole-time directors, officers
or employees to purchase or subscribe equity shares at a future data at a predetermined
price.
Different types of ESOPs
* Employee stock option scheme (ESOS) - under this scheme, the company grants an
option to its employees to acquire shares at a future date at a pre-determined price.
Eligible employees are free to acquire shares on vesting within the exercise period.
Generally, exercise price is lower than the prevalent market price.
* Employee stock purchase plan (ESPP) - this is generally used in listed companies,
wherein the employees are given the right to acquire shares of the company
immediately, not at a future date as in ESOS, at a price lower than the prevailing market
price.
* Share appreciation rights (SAR)/ phantom shares - under this scheme, no shares
are offered or allotted to the employee. The employee is given the appreciation in the
value of shares between two specified dates as an incentive or performance bonus, that
is linked to the performance of the company as a whole, as reflected in its share value.
Sweat equity shares
Sweat equity shares are those shares issued by the company to its directors and employees
at a discount or for consideration other than cash for providing know how or making
available rights in the nature of intellectual property rights or value additions.
Conditions for issue of sweat equity shares
 It should be authorized by special resolution.
 Resolution specifies the number of shares, current market price, monetary consideration
etc.
 The sweat equity shares of a company whose equity shares are listed on a recognized
stock exchange.
Rights shares
If a public company issues additional or further shares at any time after the expiry of two
years of its formation or one year of the first allotment of shares, whichever is earlier,
such additional shares must be offered to the existing equity shareholders of the company
in proportion to the capital paid up on their shares, such shares are called rights shares.
Such shares are called rights shares, as the existing equity shareholders are given
preferential rights (i.e., first preference) in the allotment of such shares.
Bonus shares
Bonus shares are shares issued by a company out of its accumulated reserves or profits to
the existing equity shareholders either as fully paid shares or partly paid shares free of cost.
Conditions for issue of bonus shares
1. It should be authorized by articles.
 2. Approval of Board of directors.
3. Company should have sufficient profit and reserves.
4. It must follow SEBI guidelines.
Advantages of Bonus shares
A) To the shareholders
 Shareholders get additional shares for free
 Not required to pay income tax on bonus shares
 Shareholders will get increased dividend in future
 When market price of shares increases shareholders can earn more profit.
B) To the company
 It does not affect working capital of the company.
 The cost of issue of bonus shares are less.
 It increases goodwill of the company.
 No tax payment related to bonus shares.
Disadvantages of Bonus shares
A) To the share holders
 It encourages speculation.
 Market value of shares sometimes fall
 Sometimes dividend per shares reduced.
 EPS will fall.
B) To the company
 It encourages undesirable speculation.
 It reduces accumulated profits earned in past years.
 Company's reputation may suffer.
 Some expenses like stamp duty, printing etc. will incurred.

Shares with differential rights

Shares with differential voting rights (DVRs) are shares that give shareholders different
levels of voting power than other shareholders. DVRs can give shareholders superior
voting rights, which means they have more votes per share than other shareholders.
Alternatively, DVRs can give shareholders inferior voting rights, which means they have
fewer votes per share than other shareholders.
Share Certificate
It is a document issued by the company evidencing that a person named in such certificate
is the owner of the shares of the company.

Contents of a share certificate

 Name and address of registered office.
 Serial number of share certificate
 Date of issue of share certificate.
 Name and address of holder.
 Number and class of shares.
 Signature.
Share warrant
It is a document issued under the common seal of the company stating that the bearer is
entitled to the specified number of shares.
Difference between share certificate and share warrant

1. Share certificates represent ownership in a company, while share warrants are a form
of options contract that give the holder the right, but not the obligation, to purchase
shares at a specific price and time.
2. Share certificates are issued by the company and represent a direct ownership in the
company, while share warrants are issued by investment banks or other financial
institutions.
3. Share certificates are generally issued to shareholders as evidence of ownership, while
share warrants are issued to investors as a separate security.
4. Share certificates have no expiration date, while share warrants have a fixed
expiration date.
5. Share certificates typically have no exercise price, while share warrants have a fixed
exercise price.
6. Share certificates are transferable, while share warrants can be exercised or sold.
7. Share certificates do not have any leverage effect, while share warrants have leverage
effect.
8. Share certificates are considered as long-term investments, while share warrants are
considered as short-term investments.

Calls on shares
When shares are issued, the terms of issue may specify the installment by which the
issue price shall be payable. A member of a company is bound to pay the nominal
amount of share which he has purchased. As noted, earlier section 69 provides that not
less than five percent of the nominal value of share can be called by way of application
money and another sum at allotment. The balance may be payable as and when called
for. The power to make call is exercised by the board in the meeting by means of a
resolution. The board, making a call, must observe the provision of the articles,
otherwise the call will be invalid and the shareholder is not bound to pay.
Forfeiture of shares
 When shares are allotted to an applicant, it becomes a contract between the
shareholder & the company. The shareholder is bound to contribute to the capital and
the premium if any of the company to the extent of the shares he has agreed to take. As
& when the directors make the calls. If the fails to pay the calls then his shares may be
forfeiture by the directors if authorized by the articles of association of the company.
The forfeiture can be only for non-payment of calls on shares and not for any other
reasons.
Surrender of shares
A shareholder who is not able to pay the call money may surrender its shares to the
company. The company cancels such surrender shares. Surrender is a voluntary act on
the part of the shareholder, whereas forfeiture is a compulsory act on part of the
company.
Buy back of shares
Buyback of shares occurs when a company purchases its own shares in the stock market.
Through buyback, a company takes outstanding shares off the market and returns capital
to investors. It can be done through a tender offer or an open market offer.
Dematerialization and rematerialisation of shares
Dematerialisation and rematerialisation are processes for converting shares between
electronic and physical forms:
Dematerialisation
It is a process of converting physical shares into digital or electronic form.
Remeterialization
It is the process by which a client can get his electronic holdings converted into physical
certificates.
Advantages of Demat system
 Immediate transfer of shares.
 No stamp duty on transfer of securities.
 Elimination of bad deliveries.
 Elimination of loss or theft of shares.
 It enables share transfer without involve much paperwork.
 Faster and smoother settlement.
Disadvantages of Demat system
 Dishonest stockbrokers.
 Trading in stock maybe uncontrollable in case of dematerialisation.
Differences between dematerialisation and rematerialisation
1. Efficiency: Dematerialisation is generally more efficient than rematerialisation.
 2. Maintenance: Dematerialised securities usually don't have maintenance charges, but
rematerialisation may incur a fee.
3. Security: Dematerialisation can be more secure than physical certificates.
4. Accessibility: Dematerialisation can be more accessible than physical certificates.
5. Investor preference: Rematerialisation can be a good option for investors who prefer
physical certificates
Transfer of shares
When a registered shareholder passed on the property or interest in his shares by sale or
otherwise (say) by gift) to another person voluntarily) there is said to be transfer of
shares. So, transfer of shares refers to the passing on of the property or interest in the
shares by a registered shareholder to some other person voluntarily for a valuable
consideration.
Forged transfer
An instrument of transfer which is not signed by the true owner of shares, but is
signed by some other person as the true owner is called a forged transfer. In other
words, an instrument of transfer which contains the forged signature of the transferor is
called a forged transfer.
Blank transfer
When an instrument of transfer duly completed and signed by the transferor, but the
name, address and signature of the transferee left blank, is delivered by the transferor to
the transferee along with the relevant share certificate, there is said to be a blank
transfer.
Transmission of shares
It is the passing of title or property in shares from one person to another by the operations
of law such as death, insolvency etc…
Differences between transfer of shares and transmission of shares
1. Transfer of shares is the result of a voluntary and deliberate act of the holder of
shares, whereas transmission of shares is the result of the operation of law.
2. Transfer of shares is a common or general method of passing of property in the
shares from one person to another. But transmission of shares takes place only under
certain special circumstances, such as the death, lunacy or insolvency of a
shareholder.
3. As the transfer of shares is a voluntary act of the parties, there must be adequate and
valid consideration for the transfer of shares. On the other hand, as the transmission of
shares is the result of the operation of law
4. As the transfer of shares take place for valid consideration, stamp duty is payable in
case of transfer of shares. But as the transmission of shares take place without any
consideration, no stamp duty is payable in the case of transmission of shares.
5. For the transfer of shares, an instrument of transfer is required to be executed by the
transferor in favor of the transferee. On the other hand, for the transmission of shares,
 there is no need for an instrument of transfer.
6. In the case of transfer of shares, as soon as the transfer is complete, the liability of
the transferor ceases completely. But in the case of transmission of shares, the shares
transmitted continue to be subject to the liability of the original holder to the
company.

Transfer under depository system

It is described as an agent or the registered stock broker of a depository The operations in the
depository system involve the participation of a depository, depository participants,
company/registrars and investors. The company is also called the issuer. A depository
(NSDL and CDSL) is an organization where the securities on an investor are held in
electronic form, through depository participants. A depository participant is the agent of the
depository and is the medium through which the shares are held in the electronic form. They
are also the representatives of the investor, providing the link between the investor and the
company through the depository. In both systems, the transfer of funds or securities happens
without the actual handling of funds or securities. Both the banks and the depository are
accountable for safe keeping of funds and securities respectively.