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SHARE CAPITAL

Share capital of a company refers to the amount invested in the company for it to
carry out its operations. The share capital may be altered or increased, subject to
certain conditions. A companys share capital may be divided into small shares of
different classes. The different classes of share capital and the rights attached to
these classes are different.
FEATURES OF SHARE CAPITAL
Share capital can be raised only by companies limited by shares and registered
with share capital.
Share capital can be raised by a company either at the time of its formation for
starting its operations or later on for further expansion
Share Capital once raised cannot be returned by the company to the
shareholders as long as it continues to exist. It can be returned only at the time
of the winding up of the company.
The following different terms are used to denote different aspects of
share capital:
Nominal, authorised or registered capital means the sum mentioned in
the capital clause of Memorandum of Association. It is the maximum amount
which the company raise by issuing the shares and on which the registration
fee is paid. This limit cannot be exceeded unless the Memorandum of
Association is altered.
Issued capital means that part of the authorised capital which has been
offered for subscription to members and includes shares alloted to members
for consideration in kind also.
Subscribed capital means that part of the issued capital at nominal or face
value which has been subscribed or taken up by purchaser of shares in the
company and which has been alloted.
Called-up capital means the total amount of called up capital on the shares
issued and subscribed by the shareholders on capital account. I.e if the face
value of a share is Rs. 10/- but the company requires only Rs. 2/- at present, it
may call only Rs. 2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the
called up share capital and Rs. 8/- is the uncalled share capital.
Paid-up capital means the total amount of called up share capital which is
actually paid to the company by the members.
SHARE
A share is the interest of a member in a company. Section 2(84) of the
Companies Act, 2013 share means a share in the share capital of a company
and includes stock.
According to this definition a share is a fractional part or unit of the capital of a
company.
It represents the interest of a shareholder in the company, measured for the
purposes of liability and dividend. It attaches various rights and liabilities.
TYPES OF SHARE
There are two types of shares under Indian Company Law:
Preference Shares means shares which fulfill the following 2 conditions.
o It carries Preferential rights in respect of Dividend at fixed amount or at
fixed rate i.e. dividend payable is payable on fixed figure or percent and
this dividend must paid before the holders of the equity shares can be
paid dividend.
o It also carries preferential right in regard to payment of capital on
winding up or otherwise. It means the amount paid on preference share
must be paid back to preference shareholders before anything is paid to
the equity shareholders. In other words, preference share capital has
priority both in repayment of dividend as well as capital.
Equity shares means that part of the share capital of the company which are
not preference shares.
Main Provisions related to Transfer of Share
Instrument for Transfer of Share is compulsory: Section 56 provides
that a company shall not register a transfer of shares of, the company, unless a
proper transfer deed in Form SH.4 duly stamped and executed by or on
behalf of the transferor and by or on behalf of the transferee and specifying the
name, address and occupation, if any, of the transferee, has been delivered to
the company, along with the certificate relating to the shares, or if no such
certificate is in existence, along with the letter of allotment of the shares.
Time Period for deposit of Instrument for Transfer: An instrument of
transfer of shares i.e. Form SH.4 with the date of its execution specified
thereon shall be delivered to the company within sixty (60) days from the date
of such execution by or on behalf of the transferor and by or on behalf of the
transferee.
Value of share transfer stamps to be affixed on the transfer
deed: Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part
thereof of the value of shares as per Notification issued by the Ministry of
Finance, Department of Revenue, New Delhi.
Time limit for issue of certificate on transfer (Section-56(4)): Every
company, shall, within One month deliver, the certificates of all shares
transferred after the application for the registration of the transfer of any such
shares, debentures or debenture stock received.
Private company shall restrict right to transfer its shares: Entire
shareholding of a private company may be owned by a family or other private
group.
Restriction on transfer in Private Company not applicable in
certain cases: Restriction upon transfer of shares is in private company are
not applicable in the following cases:
o on the right of a member to transfer his/her shares cannot be applicable
in a case where the shares are to be transferred to his/her
representative(s).
o in the event of death of a shareholder, legal representatives may require
the registration of share in the names of heirs, on whom the shares have
been devolved.
Time Limit for Refusal of registration of Transfer: Power of refusal to
register transfer of shares is to be exercised by the company within thirty (30)
days from the date on which the instrument of transfer or the intimation of
transfer, as the case may be is delivered to the company.
Time Limit for appeal against refusal to register Transfer by Private
Company: As per section 58(3), a transferee of shares may appeal to the
Tribunal against the refusal within a period of thirty (30) days from the date of
receipt of the notice from the Company or in case no notice has been sent by
the company, within a period of sixty (60) days from the date on which the
instrument of transfer or the intimation of transmission, as the case may be,
was delivered to the company.
Time Limit for appeal against refusal to register Transfer by Public
Company: As per section 58(4), a transferee of shares may, within a period of
sixty (60) days of such refusal or where no intimation has been received from
the company, within ninety (90) days of the delivery of the instrument of
transfer or intimation of transmission, appeal to the Tribunal.
Penalty for Non-compliance: Where any default is made in complying
with the provisions related to transfer of shares, the company shall be
punishable with fine which shall not be less than Rs. 25,000/- but which may
extend to Rs. 5,00,000/- and every officer of the company who is in default
shall be punishable with fine which shall not be less than Rs. 10,000/- but
which may extend to Rs. 1,00,000/-.
Main Provisions related to Transmission of Share
Person eligible to apply for transmission: The survivors in case of joint
holding can get the shares transmitted in their names by production of the
death certificate of the deceased holder of shares. In other words in case of
joint holding, the survivor or survivors shall only be entitled for registration
and the legal heir of the deceased member shall have no right or claims.
Share transfer deed not required for Transmission: Execution of
transfer deed not required in case of transmission of shares.
Intimation/application of Transmission accompanied with relevant documents
would be enough for valid transmission request.
Documents required for Transmission of Shares:In case of
transmission of shares by operation of law, it is not necessary to execute and
submit transfer deed. A simple application to the company by a legal
representative along with the following necessary evidences is sufficient:
o Certified copy of death certificate
o Succession certificate
o Specimen signature of the successor.
Liability on shares shall continue: In the case of a transmission of shares,
shares continue to be subject to the original liabilities, and if there was any lien
on the shares for any sums due, the lien would subsist, notwithstanding the
devaluation of the shares.
Payment of consideration or stamp duty not required: Since the
transmission is by operation of law, payment of consideration or payment of
stamp duty would not be required on instruments for transmission.
Time limit for issue of share certificate on transmission (Section-
56(4)): Every company, shall, within One month deliver, the certificates of all
shares transmitted after the application for the registration of the transmission
of any such shares received.
Time Limit for Refusal of registration of Transmission: Power of
refusal to register transmission of shares is to be exercised by the company
within thirty (30) days from the date on which the intimation of transmission
is delivered to the company.
Time Limit for appeal against refusal to register Transmission by
Private Company: As per section 58(3), the person who gave intimation of
the transmission by operation of law, may appeal to the Tribunal against the
refusal within a period of thirty (30) days from the date of receipt of the notice
from the Company or in case no notice has been sent by the company, within a
period of sixty (60) days from the date on which the intimation of transmission
was delivered to the company.
Time Limit for appeal against refusal to register Transmission by
Public Company: As per section 58(4), the person who gave intimation of
the transmission by operation of law may, within a period of sixty (60) days of
such refusal or where no intimation has been received from the company,
within ninety (90) days of the delivery of the intimation of transmission,
appeal to the Tribunal against such refusal.
Penalty for Non-compliance: Where any default is made in complying
with the provisions related to transmission of shares, the company shall be
punishable with fine which shall not be less than Rs. 25,000/- but which may
extend to Rs. 5,00,000/- and every officer of the company who is in default
shall be punishable with fine which shall not be less than Rs. 10,000/- but
which may extend to Rs. 1,00,000/-.
PAR VALUE OF SHARE
In India, there is the concept of par value of shares. Par value of shares means the
face value of the shares. A share under the Companies act, can either of Rs10 or
Rs100 or any other value which may be the fixed by the Memorandum of Association
of the company. When the shares are issued at the price which is higher than the par
value say, for example Par value is Rs10 and it is issued at Rs15 then Rs5 is the
premium amount i.e, Rs10 is the par value of the shares and Rs5 is the premium.
Similarily when a share is issued at an amount lower than the par value, say Rs8, in
that case Rs2 is discount on shares and Rs10 will be par value.
DEBENTURE
The term debenture is derived from Latin term deber meaning to owe So
literally, debenture means a document acknowledging a debt.
Debenture is an instrument issued by a company under seal, acknowledging a
debt to some person, and containing an undertaking to repay the debt after a
specified date or on a particular date or at the option of the company, and in
the meantime , to pay interest at a fixed rate and at regular intervals.
In short, a debenture is an instrument of credit, a bond of indebtedness, a
certificate of loan or an acknowledgement of debts issued by a company.
TYPES OF DEBENTURES
The debenture classification is based on their tenure, redemption, mode of
redemption, convertibility, security, transferability, type of interest rate, coupon
rate, etc.
REDEMPTION / TENURE
O REDEEMABLE AND IRREDEEMABLE (PERPETUAL) DEBENTURES
o Redeemable debentures carry a specific date of redemption on the
certificate. The company is legally bound to repay the principal amount
to the debenture holders on that date. On the other hand, irredeemable
debentures, do not carry any date of redemption. This means that there
is no specific time of redemption of these debentures.
CONVERTIBILITY
O CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES
o Convertible debenture holders have an option of converting their
holdings into equity shares. The rate of conversion and the period after
which the conversion will take effect are declared in the terms and
conditions of the agreement of debentures at the time of issue. On the
contrary, non-convertible debentures are simple debentures with no
such option of getting converted into equity. Their state will always
remain of a debt and will not become equity at any point of time.
SECURITY
O SECURED (MORTGAGE) AND UNSECURED (NAKED) DEBENTURES
o Debentures are secured in two ways. One when the debenture is secured
by the charge on some asset or set of assets which is known as secured or
mortgage debenture and another when it is issued solely on the
credibility of the issuer is known as the naked or unsecured debenture.
TRANSFERABILITY / REGISTRATION
O REGISTERED UNREGISTERED DEBENTURES (BEARER)
DEBENTURE
o In the case of registered debentures, the name, address, and other
holding details are registered with the issuing company and whenever
such debenture is transferred by the holder; it has to be informed to the
issuing company for updating in its records. Otherwise, the interest and
principal will go the previous holder because the company will pay to the
one who is registered. Whereas, the unregistered commonly known as
bearer debenture. can be transferred by mere delivery to the new holder.
They are considered as good as currency notes due to their easy
transferability. The interest and principal are paid to the person who
produces the coupons, which are attached to the debenture certificate.
and the certificate respectively.
TYPE OF INTEREST RATES
O FIXED AND FLOATING RATE DEBENTURES
o Fixed rate debentures have fixed interest rate over the life of the
debentures. Contrarily, the floating rate debentures have the floating
rate of interest which is dependent on some benchmark rate say LIBOR
etc.

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