Shares and share capital

types, difference , basis

1. Shares and share capital NIT MBA

2. WHAT IS SHARE? A share is a stock of a company. Each share forms a unit of ownership and is offered for sale when more capital is required by the company. According to Section 2 (46) of the Companies Act, 1956, a share is a share in the share capital of a company, and includes stock except where a distinction stock and shares is expressed or implied. The person who is the owner of the shares is called ‘Shareholder’ and the return he gets on his investment is called ‘Dividend’.

3. SHARE CAPITAL MEANING OF SHARE CAPITAL . Denotes the amount of capital raised by the issue of shares, by a company. Collected through issue of shares and remains with the company with its liquidation. The shareholders are the owners of the company. Total share capital is divided into small parts, each part known as share.

4. TYPES OF SHARE EQUITY SHARE (ORDINARY SHARE) PREFERANCE SHARE

5. EQUITY SHARE (Ordinary shares) The shares that are ordinary in course of the company’s business. Acc to section 85(2), “equity share” means with reference to any such company, all share capital which is not a preference share capital.

6. TYPES OF EQUITY SHARE

7. TYPES OF EQUITY SHARE MEANING AUTHORIZED SHARE CAPITAL ISSUED SHARE CAPITAL SUBSCRIBED SHARE CAPITAL 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. It is that part of authorized capital which is offered to investors. It is that part of Issued capital which is accepted and agreed by the investor.

8. TYPES OF EQUITY SHARE MEANING PAID UP CAPITAL RIGHTS SHARES BONUS SHARES SWEAT EQUITY SHARE Part of the subscribed capital, the amount of which is paid by the investor. To protect the ownership rights of existing investors  Shares given by the company to its  shareholders  as a dividend. Has both advantages and disadvantages like dividend, capital gain , high risk, market fluctuation etc. issued to exceptional employees or directors of the company for their exceptional job in terms of providing know-how or  intellectual property rights  to the company.

9. PREFERANCE SHARE Preference shares are those shares which carry certain special or priority rights. The percentage of dividend is fixed in preference shares . According to Sec. 85 of the Act, preference shares are those shares on which there is preference right to claim dividend during the life time of the company, and to claim repayment of capital on the winding up.

10. TYPES OF SHARE PREFERANCE SHARE CUMULATIVE AND NON CUMULATIVE PARTICIPATING AND NON PARTICIPATING REEDEMABLE AND NON REEDEMABLE COVERTIBLE AND NON CONVERTIBLE

11. Types of Preference share M eaning Cumulative Non cumulative preference shares Redeemable all dividends are carried forward until specified, and paid out only at the end of the specified period . Dividends are paid out of profits for every year. There are no arrears carried over a time period to be paid at the end of the term. Such preference shares can be claimed after a fixed period or after giving due notice.

12. Types of preference share Meaning Non redeemable Convertible Non-convertible Such shares cannot be redeemed during the lifetime of the company, but can only be obtained at the time of winding up (liquidation) of assets . The shares can be converted into equity shares after a time period, or as per the conditions laid down in the terms . Non-convertible preference shares cannot be, at any time, converted into equity shares .

13. Types of Preference share Meaning Participating Non- participating Such shares have the right to participate in any additional profits, after paying the equity shareholders. The surplus of profit is apart from the fixed dividend paid up for preference shares. Non-participating preference shares do not possess any right to participate in surplus profits or any surplus gained at the time of liquidation of the company .

14. Difference between equity and preference shares BASIS EQUITY PREFERENCE PAYMENT OF DIVIDEND The dividend is paid after the payment of all liabilities. Priority in payment of dividend over equity shareholders. RATE OF DIVIDEND Fluctuating Fixed VOTING RIGHTS Equity shares carry voting rights. preference shares do not carry voting rights. However, in special circumstances, they get voting rights. COVERTIBILITY Equity shares can never be converted. Preference shares can be converted into equity shares.

15. REDEMPTION YES NO ARREARS OF DIVIDEND Equity shareholders have no rights to get arrears of the dividend for the previous years. Preference shareholders generally get the arrears of dividend along with the present year's dividend, if not paid in the last previous year, except in the case of non-cumulative preference shares. REPAYMENT OF CAPITAL In the event of winding up of the company, equity shares are repaid at the end. In the event of winding up of the company, preference shares are repaid before equity shares.

16. Allotment of shares Issue of Prospectus- The prospectus is like an invitation to the public to subscribe to shares of the company. A prospectus contains all the information of the company, its financial structure, previous year balance sheets and profit and Loss statements etc . Receiving Applications- When the prospectus is issued, prospective investors can now apply for shares. They must fill out an application and deposit the requisite application money in the schedule bank mentioned in the prospectus. The application process can stay open a maximum of 120 days.  Allotment of Shares- Once the minimum subscription has been reached, the shares can be allotted. Generally, there is always oversubscription of shares, so the allotment is done on pro-rata bases. Letters of Allotment are sent to those who have been allotted their shares. 

17. Issue of shares In primary market (issuing shares) Public issue- issue to public at large Private issue- selected people, privately owned funds Right issue- offer to existing share holders to buy new shares at concessional rates Bonus issue- access cash, issues share at free of cost to existing s hareholders Sweat equity issue- hard-earned money , to loyal employees (*are issued according to type of company)

18. In secondary market(issued shared) Stock market- can be issued by listed public companies. Transfer- governed by the general law, share is a movable property(sec 44)

19. Transfer of shares. Instrument of transfer (form SH.4) Duly stamped, dated and executed Be delivered to the company By the transferor or transferee Within a period of 60 days from the date of execution Along with security certificate or letter of allotment

20. Transmission of shares Where shares pass by transmission of law from one person to another. No consideration is required for transmission of shares . Takes place in case of death, insolvency or liquidity A person who gets transmitted shares has 2 options: To get himself registered as a member or To transfer the shares

21. Basis Transfer of shares Transmission of shares Nature of act Voluntary and deliberate Involuntary and is the result of operation of law Instrument of transfer Has to be executed by both transferor and transferee Not required, only a proof of title to the shares of person Consideration Transferred to another person for some consideration Passes without consideration Stamp duty Through an instrument of transfer , stamp duty is payable on market value of shares No stamp duty

22. Bibliography. Websites https:// www.owlgen.com https:// www.toppr.com https:// www.investopedia.com http:// www.mca.gov.in https:// taxguru.in/company-law/procedure-transfer-shares-companies-act-2013.html THANK YOU.