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Share and Share Capital
The term “Capital” is viewed by a layman as the money, which a business persons invest in the business and in case of company raise the capital by issue of shares. They uses this money to meet its requirements by way of acquiring business premises and stock-in-trade, which are called the fixed capital and the circulating capital respectively. The phrase “loan or borrowed capital” is sometimes used to mean money borrowed by the company and secured by issuing debentures. This, however, is not the proper use of the word “capital”.
In case of company limited by shares, the word “capital” means the share capital i.e., the capital in terms of rupees divided into specified number of shares each having fixed rupee value. For e.g. share capital of a company is Rs.10,00,000 which can be divided into 10,000 shares of Rs.100 each or 1,00,000 shares of Rs.10 each, whichever is reasonable to the company.
The term Share is viewed by a layman as a fraction or portion of total capital of the company which have equal denomination. In simple, the total capital of the company is shared by many person and each share is having equal value.
According to Section 2(84) of the Companies Act, 2013, share means share in the "Share Capital of a company and includes stock except where a distinction between stock and share is expressed or implied"
According to Section 43 of the Act, a company which is limited by shares can issue two classes of shares they are:
(i) Equity Share Capital:
a) With Voting rights or
b) With differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed.
(ii) Preference Share Capital
Those shares which are not called as preference share are known as Equity share or the share of a company which do not have any preferential rights with regard to dividend and repayment of share capital at the time of liquidation of a company.
Section 42 of the Companies Act, 2013 the term ‘preference shares’ mean that part of the share capital the holders of which have a preferential right over payment of dividend (fixed amount or rate) and repayment of share capital in the event of winding up of the company.
There are eight types of preference shares. In case of dissolution of the company, any of the eight types would be paid out before other types of equity.
Cumulative Preference shares: As the word indicates, all dividends are carried forward until specified, and paid out only at the end of the specified period.
Non-cumulative Preference shares: The opposite of cumulative, obviously. 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
Redeemable Preference shares: Such preference shares can be claimed after a fixed period or after giving due notice.
Non-Redeemable Preference shares: 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.
Convertible Preference shares: 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: Non-convertible preference shares cannot be, at any time, converted into equity shares.
Participating Preference shares: 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: 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.
Tenure of Preference Shares
Tenure of Preference Shares continued as 20 years except for “Infrastructural Projects” Companies having "infrastructural projects" can issue Preference Shares for more than 20 years but up to 30 years subject to minimum 10% redemption of such preference shares from 21st year onward or earlier.
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