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CAPITAL OF A COMPANY SHARES
CAPITAL OF A Joint Stock Company
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The Capital of Joint Stock Company is usually divided in to certain indivisible units of a fixed amount.
These units are called “SHARES”
SHARES
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Meaning of Shares.
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“SHARE” means a definite portion of the Capital of a Company.
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A Share is the interest of a shareholder in a Company,measured by a sum of money.
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Definition: Section 2(46) defines a share as “the interest of a shareholder in the company, measured by
a sum of money for the purpose of liability, in the first place , and of interest in the second,but also
consisting of a series of mutual convenants entered into by all the shareholders.
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Share Certificate A share is evidenced by a share certificate. It specify the Number of shares held by a
member,issued bya Company under its common seal.
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Stock Stock is the aggregate of fully paid-up shares,consolidated and divided,for the purpose
convenient holding in to different parts.
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Distinction between Shares and Stocks
SHARES
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Shares have Nominal Value
Shares can be partly paid up
Can not be transferred in FRACTIONS
All shares EQUAL denomination
Always bears distinctive Numbers
Can be directly Issued to Publi
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STOCKS
No Nominal Value
Should be FULLY paid up
Can be transferred in FRACTIONS
May be UNEQUAL amounts also
May not bears distinctive Nos.
Can not be DIRECTLY issued. Only fully paid shares
will be converted as STOCK
TYPES of SHARES
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As per the Company’s Act 1956, a company can issue two types of shares.,viz.,
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1. Preference Shares and
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2.Equity Shares
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1. Preference Shares are those which have a:-
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a) preferential Right to get dividend., and
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b) a preferential right to the return of capital when the company goes in to liquidation.
2.Equity shares
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Equity shares are those which are not preference shares.
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In other words,equity shares are those which do not carry preference as to:
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a) payment of dividend
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b) repayment of capital when the Company goes in to liquidation.
Kinds Of Preference Shares
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1. Cumulative preference Shares
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2.Non-cumulative preference shares
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3.participating preference shares
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4.Non-participation Preference Shares
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5.convertible preference Shares
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6.Non-convertible preference Shares
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7.Redeemable preference Shares
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8.Irredeemable preference shares.(new section8o-A of amendment 1988)(can not issue)
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Guaranteed prerference shares
Kinds of preference Shares
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. Cumulative Preference shares: are preference shares, the holders of which are entitled to
receive the arrears of dividend, if any,due to them,which was not paid to them in earlier years
due to lack of profit.
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Non-cumulative Preference Shares : These are shares on which the dividend does not
accumulate.These shareholders are not entitled for arrears of dividend if there were no enough
profit .
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Participating Preference Shares:
The holders of participating shares are entitled, in addition to a fixed rate of dividend,to
participate in the surplus profits of the company and are also entitled to participate in the
surplus assets of the company in the event of Windingup. `
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Non-participating preference Shares
The holder non-participating preference share will get only a fixed rate of dividend and are Not
entitled for additional dividend from the surplus profit
Redeeemable Preference Shares: These shares which are to be redeemed(paid back) by the
company on or after the expiry of a fixed period. They have to be repaid by the company after
the term of Issue.
Irredemable preference Shares: are not redeemed until the Company is liquidated. As per the
Indian Companies Act,company can not issue Irredeemable shares
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Convertible preference Shares:
These preference shares can be converted into equity shares at the option of the holders, with
in a specified time.
Non-convertible Preference Shares :
These non-convertible preference shares can NOT be converted in to equity shares.
Guaranteed preference Shares:
The holders of guaranteed preference share holders are assured of(guaranteed) a fixed
dividend even if the company make no or insufficient profits.
Deferred shares are those, whose right to receive dividend and refund of capital are
deferred.means post poned to the END.These shareholders get their dividend only after the
payment of dividend to preference and equity shareholders.
Debentures
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Meaning and Features of Debentures
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Debenture is a instrument issued by a company under its common seal, acknowledging its
debt to the holder and containing an undertaking to repay the debt on or after a specified
period and to pay interest on the debt at a fixed rate at regular intervals, usually half yearly
until the debt is paid.
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Features:
1. Debenture holders are the Creditors of the Company and NOT the OWNERS.
2. Amount raised by way of Debentures are to be REPAID during the tenure of the company.
3. Therefore debentures are not a source Permanent Capital.
4.Debentures generally Secured
5. Debenture holders possess low risk
6.Debentures are considered as cheap source
of Capital from the company’s view.
7. debenture holder have NO Voting RIGHTS
8. Interest on debenture is payable , irrespective
whether the company make profits Or Not.
9.It is an Instrument in writing
10. from the company’s point of view ,debentures are very
risky to raise funds
KINDS of DEBENTURES
1. Registered Debentures: Debentures in respect of which name, address and other details
relating to the holder are properly entered in the Register are known as REGISTERED
Debentures. They are not easily transferable by mere delivery or endorsement , but need
execution of proper instrument of transfer. Payment of Interest and repayment of capital will
be done only to respective registered holders.
2. Bearer Debentures Or Unregistered Debentures:
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These are debentures which are payable to the Bearer.The names and other particulars of
these debenture holders are not registered in the Register. Payment of interest and repayment
of capital are made to the holders . They are NEGOTIABLE instruments.
3. Secured debentures: are debentures which are secured by the property of the Company, in
respect of interest and capital. The charge on the asset can be fixed or floating.
4.Un secured Debentures: These debentures are Not secured by any assets of the Company
with respect to interest Or capital. Holders of Unsecured debentures are just ordinary
unsecured creditors, as there is no security for interest or capital.
5.Redeemable Debentures: are those debentures which are repaid after the expiry of a
specified period, during the existence of the company.
6.Irredeemable(perpetual) debentures: These type of debentures are not repaid during the
lifetime of the company but will be repaid ONLY when the Company goes in to liquidation
7.Convertible Debentures: The holder of these debentures have an option to convert them
into preference or equity shares after certain period.
Merits and Demerits of DEBENTURES
MERITS
1.Cost of capital associated with Debentures will be comparatively less than the cost associated
with equity shares.
2.Investors are provided with security for their Investments.
3.Debentures can be redeemed the company has surplus funds
4.Equity share holders who are the owners ,will not lose control as debenture holders have no
voting rights.
5. Investors get fixed rate of interest irrespective of the profit earned by the company.
Demerits of Debentures.
1.The company has to pay fixed rate of interest , irrespective of whether the company make
profit or not.
2. The principal amount has to be repaid by the company at predetermined time, irrespective
of availability of funds.
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3. Cost of raising capital through debentures is high.
4. The Company should have sufficient assets to provide security to the debentures.
Difference between Shares and Debentures
SHARES
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DEBENTURES
Shares constitute Capital of the Company
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Shares are normally issued by the Co.,
immediately after Incorporation.
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Share holders are the owners of the Company•
Share holders have voting rights
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Entitled for Dividend
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Rate of dividend payable may vary
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Debentures constitute part of Loan on the
company.
Debentures are issued at a later Stage.
Debenture holders are CREDITORS.
Debenture holders have NO voting rights
Entitled for a Fixed rate of Interest
Rate of interest for Debentures is Fixed
LISTING OF SECURITIES
Meaning of Listing of Shares
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Listing of securities means the inclusion of securities of a company in the official list of a stock
exchange, for the purpose of purchase and selling.
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Only the shares of the companies which are included in the TRADE LIST of a stock exchange
are allowed to be bought and sold in the Stock Exchange.
Procedures for LISTING of shares
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The company has to furnish the necessary information and documents and fulfills the
conditions laid down in the rules and regulations of the Stock exchange.
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For this purpose, the Company has to apply to the Stock Exchange in the Prescribed format
along with following documentary evidence:
1.Copies of Memorandum and Articles of Association , prospectus Or a Statement in lieu of
prospectus, directors Report, Balance sheets etc.
2. Underwriting Agreements
3.Particulars of its CAPITAL STRUCTURE
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4. Specimen copies of Share Certificates, debenture certificates, letters of Allotment &
Acceptance etc.
5. A Statement showing distribution of Shares.
6. Particulars of shares for which Application is filed for listing
7.A brief summary of Activities of the Company.