SHARE CAPITAL

SHARE CAPITAL

Denotes the amount of capital raised by the issue of

shares, by a company.
Collected through the issue of shares and remains
with the company till its liquidation.
 The shareholder are the owners of the company.
The total share capital is divided into small parts and
each part is called a share.
Share is the smallest part of the total capital of a
company.
 Classification of Share Capital

Authorized/ Registered Share Capital

Issued Capital

Subscribed Capital

Called up Capital
Uncalled Capital

Paid-up Unpaid
Authorized Capital : Section 2(8) 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.
Issued Capital : Section 2(50) “issued capital” means
such capital as the company issues from time to time
for subscription.
Subscribe Capital : Section2(86)  “subscribed
capital” means such part of the capital which is for the
time being subscribed by the members of a company.
Called Capital: Section2(15) “called-up capital”
means such part of the capital, which has been called
for payment.
Paid –up Capital : Section2(64)  “paid-up share
capital” or “share capital paid-up” means such
aggregate amount of money credited as paid-up as is
equivalent to the amount received as paid up in
respect of shares issued and also includes any amount
credited as paid-up in respect of shares of the
company, but does not include any other amount
received in respect of such shares, by whatever name
called.
 Meaning of Share

Section 2(84) :  “share” means a share in the share

capital of a company and includes stock.
Halsbury’s Laws of England : A share is a right
to a specified amount of the share capital of a
company, carrying with it certain rights and
liabilities while the company is a going concern and
in its winding up.
 Types of Share

Equity shares
Preference shares
 Equity shares

Equity shares are those shares which are ordinary in

the course of company's business. They are also
called as ordinary shares.
According to section 85 (2), “Equity share capital”
means, with reference to any such company, all share
capital which is not preference share capital.
 Preference shares

According to section 85 (1) “Preference share capital” means,

with reference to any company limited by shares, that part of
the share capital of the company which fulfils both the
following requirements, namely:—
(a) that as respects dividends, it carries or will carry a
preferential right to be paid a fixed amount or an amount
calculated at a fixed rate, and
(b) that as respects capital, it carries or will carry, on a
winding up or repayment of capital, a preferential right
to be repaid the amount of the capital paid up or deemed to
have been paid up, whether or not there is a preferential
right to the payment.
Equity share capital Preference capital

1.Rate of dividend depends upon the 1.Rate of dividend is fixed .

amount of profits available .

2.Dividend paid only after the preference 2.Dividend paid in preference to equity
dividend has been paid. shares.

3.In winding up, share holder get payment 3.In winding up, shareholder get
of capital after the payment of capital to preference over equity shareholders with
preference shareholders regard to payment of capital.

4. An equity shareholders can vote on all 5. The voting right of preference

matters affecting the company. shareholders are restricted.

5. Company may issue right and bonus 6. No bonus and right shares are issued to
share to its existing equity shareholders. preference shareholders.
 Debenture

 
The word ‘debenture’ itself is a derivation of the Latin word
‘debere’ which means to borrow or loan. Debentures are
written instruments of debt that companies issue under their
common seal. They are similar to a loan certificate.
Debentures are issued to the public as a contract of
repayment of money borrowed from them. These debentures
are for a fixed period and a fixed interest rate that can be
payable yearly or half-yearly. Debentures are offered to the
public at large, like equity shares. Debentures are actually
the most common way for large companies to borrow money.
 Difference b/w shareholders and stakeholders

Shareholder Stakeholder
A stakeholder has a concern in the
A shareholder possess part of a public
performance of a company for reasons other
company through shares of stock
than stock performance or appreciation.
Organization
Just a company or organization, which is Every company or organization have
bounded by shares have shareholders. stakeholders.
What is It?
Subset Super-set
Contains
Shareholders, lenders, Debenture holders,
Justness shareholders, Priority shareholders Employees, Customers, Suppliers,
Government, etc.
Who are They?
Owners Interested Parties
Focuses On
Return on investment Performance of the company
 ALLOTMENT OF SHARES

Allotment of shares means : the act of appropriation

by the board of directors of the company out of the
previously un-appropriated capital of a company of
a certain number of shares to person who have
made applications for shares (In Re Calcutta
Stock Exchange Association, AIR 1957 Cal.
438).
 GENERAL PRINCIPLES

1. Allotment should be made by proper authority.

[Changa Mal v. Provisional Bank(1914)] Allotment made without

proper authority will be invalid. Made by irregularly constituted Board of
directors shall be invalid.

2. Allotment of securities must be made within a reasonable

time

3. The allotment should be absolute and unconditional:

allotted must be on same terms on which they applied for
and as they stated in the application for securities.
 PROVISIONS RELATED TO ALLOTMENT

 Section 39(1) : Stated that no allotment of any securities of a

company  offered to the public for subscription shall be made
unless the amount stated in the prospectus as the minimum
amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and
received by the company..
 Section 39(2) Minimum Application Money
The amount payable on application on every security shall not
be less than five per cent of the nominal amount of the security or
such other percentage or amount, as may be specified by the
Securities and Exchange Board by making regulations in this
behalf.
 CONT.

 Money to be returned if minimum application money is not

yet received :  If the stated minimum amount has not been
subscribed and the sum payable on application is not received within a
period of thirty days from the date of issue of the prospectus, or such
other period as may be specified by the Securities and Exchange Board.

 Company to file return of allotment: whenever a company

having a share capital makes any allotment of securities, it shall be file
with the Registrar a return of allotment in Form PAS-3 (Prospectus and
Allotment of Securities ) rules, 2014.

 Penalty: In case of any default, the company and its officer shall be
liable to a penalty for each default Rs.1000 each day or Rs. 1 lakh ,
whichever is less.
 Transmission of Shares

 There are some cases when the transfer of shares occurs

due to the operation of law, i.e. when the registered
shareholder is no more, or when he is insolvent or lunatic.
Transmission of shares also occurs when the shares are
held by a company, and it is wound up.
 The shares are transferred to the legal representative of the
deceased and the official assignee of the insolvent. The
transmission is recorded by the company when the
transferee gives the proof of entitlement of shares.
transmission of shares is initiated by
the legal representative of the
concerned member.
In the case of transmission of shares,
no consideration shall be paid.
 What are company Securities?

The term "security" is a fungible, negotiable

financial instrument that holds some type of
monetary value. It represents an ownership
position in a publicly-traded corporation—via
stock—a creditor relationship with a
governmental body or a corporation—
represented by owning that entity's bond—or
rights to ownership as represented by an
option.
 1. Equity Securities

An equity security represents ownership interest held by

shareholders in an entity (a company, partnership or trust),
realized in the form of shares of capital stock, which
includes shares of both common and preferred stock.
Holders of equity securities are typically not entitled to
regular payments—although equity securities often do pay
out dividends—but they are able to profit from capital gains
when they sell the securities (assuming they've increased in
value, naturally). Equity securities do entitle the holder to
some control of the company on a pro rata basis, via
voting rights. In the case of bankruptcy, they share only in
residual interest after all obligations have been paid out to
creditors. They are sometimes offered as payment-in-kind.
 2. DEBT SECURITY

A debt security represents money that is borrowed and must be

repaid, with terms that stipulates the size of the loan, interest
rate, and maturity or renewal date. Debt securities, which include
government and corporate bonds, certificates of deposit (CDs)
and collateralized securities (such as CDOs​and CMOs​), generally
entitle their holder to the regular payment of interest and
repayment of principal (regardless of the issuer's performance),
along with any other stipulated contractual rights (which do not
include voting rights). They are typically issued for a fixed term,
at the end of which they can be redeemed by the issuer. Debt
securities can be secured (backed by collateral) or unsecured,
and, if unsecured, may be contractually prioritized over other
unsecured, subordinated debt in the case of a bankruptcy.
 3. Hybrid Securities

Hybrid securities, as the name suggests, combine

some of the characteristics of both debt and equity
securities. Examples of hybrid securities include
equity warrants (options issued by the company itself
that give shareholders the right to purchase stock
within a certain timeframe and at a specific price),
convertible bonds (bonds that can be converted into
shares of common stock in the issuing company) and
preference shares (company stocks whose payments
of interest, dividends or other returns of capital can
be prioritized over those of other stockholders).
 Role of court to protect the interest of shareholders and creditors.

The Companies Act, 2013 is enacted with the

main aim to assure maximum protection to
every section of investors irrespective of their
classes. The Companies Act, 2013 has been
embedded with several new provisions in
regards to the protection of investor’s interest.
Some of the provisions to protect investor’s
interest under the Companies Act, 2013 are
discussed hereunder.
2. Misstatement in Prospectus: The prospectus is
a written statement issued by the company to the
general public containing brief information regarding
companies profile and their investment proposals.
Section 34 of the Act deals with the criminal liability
for miss statement in the prospectus issued by a
company. The prospectus issued, circulated or
distributed, include any statement, which is untrue or
misleading in form or context to induce people to
make an investment, shall be liable for action u/S 447.
3.Fraudulently Inducing Person to
Invest Money: Section 36 of the Act deals
with the punishment of the person who
intentionally or recklessly induces the
investor to make the investment through any
agreement for the purpose or the pretended
purpose of which to secure a profit. This kind
of deliberate concealment of fact shall be
liable for punishment u/s 447.
4.Non-Payment Of Dividend: Declaration of the dividend is
usually one of the items of agenda of every AGM. The dividend is
nothing but profits earned by the company and divided among
shareholders in proportion to the amount paid-up shares held by
them, i.e., return on the investment made by shareholders. The
Section 125 of the Act provides for the establishment of investors
education and protection fund by the central government. This
fund is credited with the unpaid/unclaimed amount of application
money/matured money or mature deposits. Such accumulations of
the fund are to be utilized for promotion of investor’s awareness
and protection of investor interest. Section 123 of the Act state that
the dividend should be credited in investors account within in five
days after the declaration.
5. Right to Demand Financial Statements:
Section 136 of the Act provides for the right of a
member to obtain copies of Balance-Sheet and
Auditors Reports. In the case of default complying with
this requirement, the company shall be liable for a
penalty of twenty-five rupees and the authorized officer
who is in default shall be liable for a penalty of five
thousand rupees. Besides, this investor has the option
to proceed against the company or its authorities in a
court of law under the guidelines determined under
Section 436 of the Act.
6. CLASS ACTION SUITS
As a major change, the Act empowers the investor and minority
shareholders by introducing "class action suits". During the Satyam
scam, where US counterparts could institute such suits and recover
damages, Indian investors were without any recourse. In addition to
the remedies under oppression and mismanagement, S. 245 introduces
this concept and provides collective remedies to investors and claim
damages against erring companies. It vests a right with members or
depositors or class thereof (100 in number) to file a representative
application with the National Company Law Tribunal ("NCLT"), if they
feel that management or company's affairs is conducted in a prejudicial
manner. The positive determination that an alleged conduct is
prejudicial is done if the conduct is prejudicial to the company's
interest, or interest of stakeholders. There is no illustrative list for
prejudicial conduct under the Act and the same may be decided on
factual basis. Instances such as drawing funds for personal use,
negligent action or omission, oppressive measures towards minority
were considered as prejudicial conduct under the old law.
7. FRAUD AND INVESTIGATION
The Act has introduced "fraud" for the first time and given it a
wide scope. Apart from the definition, the Act also contemplates
presumption of fraud in certain instances. For example
furnishing false information or suppressing material information
upon incorporation, providing misleading or false statements in
prospectus, issuing duplicate share certificates to defraud,
fraudulently transferring or transmitting shares and fraudulently
applying for removal of company's name. For the board, this may
have varied connotations. Proof of negligence or willful
misconduct by a director may weigh heavily in adjudging guilt for
fraud. It is immaterial if there is any actual wrongful gain or loss,
and proof of intent to defraud will suffice. Thus, the directors will
now be required to discharge their statutory duties in a
reasonable and diligent manner while exercising independent
judgment to provide a positive inference of non-involvement in
any alleged fraudulent conduct.