INTRODUCTION

Every company limited by shares must have a 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.

NATURE OF SHARES

A share is the interest of a member in a company. Section 2(84) of the Companies Act, 2013
(hereinafter referred to as Act) share means a share in the share capital of a company and
includes stock. It represents the interest of a shareholder in the company, measured for the
purposes of liability and dividend. It attaches various rights and liabilities. Share, debentures or
other interest of any member in a company shall be movable property. It shall be transferable in
any manner provided for in the articles of association of the company. A member may transfer
any other interest in the company in the manner provided in the articles. For example rights
attached to a member in a guarantee company such as membership interest, suspension of
membership or assignment of interest may be made transferable by making a provision in the
Articles of the company.
Shareholding is a complex system of joint ownership. The shareholders jointly own the
company. At the same time a share is itself an item of property which (subject to the company's
articles) can be transferred by sale or gift.
In return for investing in a company a shareholder gets a bundle of rights in the company which
may vary according to the type of shares acquired. Most companies only have one class of
shares (ordinary shares) but the law in the UK is extremely flexible and allows any classes of
shares to be created. This is done by setting out the different rights attached to the various
classes (usually in the company's articles). What rights are attached to the different classes of
shares is essentially a matter for the company to determine.
The main rights which usually attach to shares are:

1. To attend general meeting and vote

Typically shares carry one vote each at general meetings but there may be non-voting shares
or shares with multiple votes. Some shares may carry the right to vote only in particular
circumstances where the company has different classes of shares.
2. To a share of the company's profits
The distribution of profits is paid by means of a dividend of a certain amount paid on each
share. A dividend may be paid only if the company has made profits and to the extent that it
decides to distribute them. (See CA 2006, sec829-853, particularly sec830). If the company
so provides in its articles, different dividends may be paid on different classes of shares.
3. To a final distribution on winding up If the company is wound up and all the creditors are
paid the remaining assets are available for division among the members. This may be in two
stages: (1) a return of capital; (2) distribution of surplus capital. Some shares may be given a
priority as to one or both of these.
 4. That the company be run lawfully
i.e. in accordance with the Companies Acts, the general law and the company's constitution.
In most circumstances only the members of the company will have the legal right to sue to
make the company act lawfully, and even they may be restricted in their ability to sue under
the common law rule in Foss v Harbottle. This is a complex area beyond the scope of this
database.

Types of shares:
As per the provision of section 85 of the Companies Act, 1956, the share capital of a company
consists of two classes of shares, namely:

1. Preference Shares
2. Equity Shares
3. Preference Shares:

According to Sec 85(1), of the Companies Act, 1956, a preference share is one, which carries the
following two preferential rights:
(a) The payment of dividend at fixed rate before paying dividend to equity shareholders.
(b) The return of capital at the time of winding up of the company, before the payment to the
equity shareholder.

Both the rights must exist to make any share a preference share and should be clearly mentioned
in the Articles of Association. Preference shareholders do not
have any voting rights, but in the following conditions they can
enjoy the voting rights:
(1) In case of cumulative preference shares, if dividend is outstanding for more than two years.
(2) In case of non-cumulative preference shares, if dividend is outstanding for more than three
years.
(3) On any resolution of winding up.
(4) On any resolution of capital reduction.

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.
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.
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:
(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.
Non-Participating Preference Shares: Non-participation preference shares are those shares,
which do not have the following rights:
Types of shares; Equity shares; Preference shares; Deferred shares; Bonus shares
There are different types of shares. I have mentioned about the most popular shares which are as
follows:-
Equity shares: These shares are also known as ordinary shares. They are the shares which do
not enjoy any preference regarding payment of dividend and repayment of capital. They
are given dividend at a fluctuating rate. The dividend on equity shares depends on the
profits made by a company. Higher the profits, higher will be the dividend, where as
lower the profits, lower will be the dividend.

Preference shares: These shares are those shares which are given preference as regards to
payment of dividend and repayment of capital. They do not enjoy normal voting rights.
Preference shareholders have some preference over the equity shareholders, as in the case of
winding up of the company, they are paid their capital first. They can vote only on the matters
affecting their own interest. These shares are best suited to investors who want to have
security of fixed rate of dividend and refund of capital in case of winding up of the company.

Deferred shares: These shares are those shares which are held by the founders or pioneer or
beginners of the company. They are also called as Founder
shares or Management shares.
In deferred shares, the right to share profits of the company is deferred, i.e. postponed till all the
other shareholders receive their normal dividends. Being the last claimants of the profits, they
have a considerable element of speculation or uncertainty and they have to bear the greatest risk
of loss. The market price of such shares shows a very wide fluctuation on account of wide
dividend fluctuations. Deferred shares have disproportionate voting rights. These shares have a
small denomination or face value. Deferred shares are not transferable if issued by a private
company. Deferred shareholders do not enjoy the right of priority to have shares offered in case
of the issue of shares by the company. If the company goes into liquidation the deferred
shareholders can get refund of capital and participate in the surplus capital, if any, after the rights
of preference and equity shareholders have been satisfied.
 Bonus shares: The word bonus means a gift given free of charge. Bonus shares are those shares
which are issued by the company free of charge as bonus to the shareholders. They are issued to
the existing shareholders in proportion to their existing share holdings. It is a kind of gift to the
shareholders from the company. It is bonus in the form of shares instead of cash. It is given out
of accumulated profits and reserves. These shares have all types of preferences which are
available to the existing shares. For example. two bonus shares for five equity shares. The issue
of bonus shares is also termed as capitalization of undistributed profits. Bonus shares is a type of
windfall gain to the equity shareholders. They are advantageous to the equity shareholders as
they get additional shares free of cost and also they earn dividend on them in future.
Conditions for issue of bonus shares:
(i) Sufficient amount of undistributed profits: There must be sufficient amount of
undistributed profits for the issue of bonus shares.
(ii) Provision in the articles: There must be a provision in the articles of association regarding
the issue of bonus shares. If there is a provision in the articles
regarding the issue of bonus shares the company can issue
bonus shares if there is no provision, the company cannot issue
the bonus shares.
(iii) Suitable Resolution: The Board of Directors must pass a suitable resolution in the Board
meeting for the issue of bonus shares.
(iv) Shareholders approval: The shareholders must give formal approval for the issue of bonus
shares in the Annual General Meeting.
(v) When a company can issue: A company can issue bonus shares only twice in a period of
five years.
(vi) Fully paid up shares: Bonus shares can be issued only when the existing shares are fully
paid up.

ISSUE OF SHARES
(A) Issue of Shares at Premium Where a company issues shares at a premium, whether for cash 18
Share Capital and Debentures or otherwise, a sum equal to the aggregate
 amount of the premium received on those shares shall be transferred to a
securities premium account. The provisions of this Act relating to
reduction of share capital of a company shall, except as provided in section
52, apply as if the securities premium account were the paid-up share capital
of the company. (Section 52) The securities premium account may be
applied by the company (a) towards the issue of unissued shares of the
company to the members of the company as fully paid bonus shares; (b) in
writing off the preliminary expenses of the company; (c) in writing off the
expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company; (d) in providing for the premium
payable on the redemption of any redeemable preference shares or of any
debentures of the company; or (e) for the purchase of its own shares or other
securities under section 68. Certain class of companies as may be prescribed
and whose financial statement comply with the accounting standards
prescribed for such class of companies under section 133, can utilise
securities premium account only for the following purposes:- (a) in paying
up unissued equity shares of the company to be issued to members of the
company as fully paid bonus shares; or (b) in writing off the expenses of or
the commission paid or discount allowed on any issue of equity shares of
the company; or (c) for the purchase of its own shares or other securities
under section 68.

(B) Issue of Shares at Discount

A company under section 53 of the Act has been prohibited to issue shares at discount, except in
case of issue of sweat equity shares. Any share issued by a company at a
discounted price shall be void. Where a company contravenes the provisions
of this section, the Share Capital and Debentures 19 company shall be
punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees and every officer who is in default shall be
punishable with imprisonment for a term which may extend to six months or
with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees, or with both. (C) Issue of Sweat Equity Shares
According to Section 2(88) of the Act sweat equity shares means such
equity shares as are issued by a company to its directors or employees at a
discount or for consideration, other than cash, for providing their know-how
or making available rights in the nature of intellectual property rights or
value additions, by whatever name called. The rights, limitations,
restrictions and provisions as are for the time being applicable to equity
shares shall be applicable to the sweat equity shares issued under this
 section and the holders of such shares shall rank pari passu with other equity
shareholders

SHARE CERTIFICATE

Every share in a company having share capital shall be distinguished by distinctive number. This
section does not apply to shares held by a person as a beneficial owner in
depository. Section 46 of the Act declares that a certificate, issued by the
company under the common seal of the company shall be prima facie
evidence of the title of the person to such shares. Such certificate shall
specify the shares held by any person. Where the shares are held in
dematerialised form the record of the depository is the prima facie evidence
of the interest of the beneficial owner. Section 56 sub clause 4 provides that
every company shall, unless prohibited by any provision of law or any order
of Court, Tribunal or other authority, deliver the certificates of all securities
allotted (a) within a period of two months from the date of incorporation,
in the case of subscribers to the memorandum; (b) within a period of two
months from the date of allotment, in the case of any allotment of any of its
shares. The manner of issuance of a certificate of shares or the duplicate
Share Capital and Debentures 7 thereof, the form of such certificate, the
particulars to be entered in the register of members are prescribed under
Rules

FORFEITURE OF SHARES
The provision with regard to forfeiture of shares is contained in Table F (Articles of Association of Company
Limited by Shares). Provisions under Table F of the schedule I relating to forfeiture
of shares are as under: 28. If a member fails to pay any call, or instalment of a call,
on the day appointed for payment thereof, the Board may, at any time thereafter
during such time as any part of the call or instalment remains unpaid, serve a
notice on him requiring payment of so much of the call or instalment as is unpaid,
together with any interest which may have accrued. 29. The notice aforesaid
shall (a) name a further day (not being earlier than the expiry of fourteen days
from the date of service of the notice) on Share Capital and Debentures 15 or
before which the payment required by the notice is to be made; and (b) state
that, in the event of non-payment on or before the day so named, the shares in
respect of which the call was made shall be liable to be forfeited. 30. If the
requirements of any such notice as aforesaid are not complied with, any share in
respect of which the notice has been given may, at any time thereafter, before
 the payment required by the notice has been made, be forfeited by a resolution of
the Board to that effect.

TRANSFER, TRANSMISSION
The scope of transfer of securities have been widened under section 56 of the Act to include all the
securities of the company and * sub-sections not notified 32 Share Capital and Debentures the interest
of a member in the company in the case of a company not having no share capital. General Condition:
The section provides that a company shall not register a transfer of securities, other than the transfer
between persons both of whose names are entered as holders of beneficial interest in the records of a
depository, unless a proper instrument of transfer, in such form as may be prescribed. Such form shall
be duly stamped, dated and executed by or on behalf of the transferor and the transferee, and
specify the name, address and occupation, if any, of the transferee. Under the rules an instrument of
transfer of securities held in physical form shall be in Form No. SH-4 and every instrument of transfer
with the date of its execution specified thereon shall be delivered to the company within sixty days from
the date of such execution. In the case of a company having no share capital, the provisions aforesaid
rule shall apply to the interest of the member in the company. Time period: Aforesaid form shall be
delivered to the company by the transferor or the transferee within a period of sixty days from the date
of execution, along with the certificate relating to the securities, or if no such certificate is in existence,
along with the letter of allotment of securities. Loss of instrument: Where the instrument of transfer has
been lost or the instrument of transfer has not been delivered within the prescribed period i.e. within
sixty days from date of execution, the company may register the transfer on such terms as to indemnity
as the Board may think fit. Partly paid up Shares: The section provides that where an application is made
by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the
company gives the notice of the application, in such manner as may be prescribed, to the transferee and
the transferee gives no objection to the transfer within two weeks from the receipt of notice. According
to Rules a company shall not register a transfer of partly paid shares, unless the company has given a
notice in Form No. SH.5 to the transferee and the transferee has given no objection to the transfer
within two weeks from the date of receipt of notice.

Transmission of shares:
On receipt of an intimation of transmission of any right to securities by operation of law from any person to
whom such right has been transmitted the company shall exercise its power to
register the same. Further the section provides that the transfer of any security or
other interest of a deceased person in a company made by his legal
representative shall, even if the legal representative is not a holder thereof, be
valid as if he had been the holder at the time of the execution of the instrument of
transfer. Delivery of securities: The Company shall deliver the certificates of all
securities transferred or transmitted within a period of one month from the date
of receipt by the company of the instrument of transfer or, of the intimation of
transmission. Further the section provides where the securities are dealt with in a
depository, the company shall intimate the details of allotment of securities to
depository immediately on allotment of such securities. Penal Provisions: The
company shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees and every officer of
the company who is in default shall be punishable with fine which shall not be less
than ten thousand rupees but which may extend to one lakh rupees.