Share &

its types

Share

Definition: Acc to sec 2(4) of the company act 2013 ‘share’ means in the share capital of a company, and include stock except where a distinction between stock or share is expressed or implied .

Meaning of share:-

Every part of a joint capital of a company is a ‘share’. By acquiring the share of a company, any individual can become the company’s shareholder. The right and liability of a shareholder originate because of the share that are held by a person in a company.

Characteristic of share

Movable property NumberShare certificateRegistration of share Right and interest

Types of shares Equity shares

Preference sharesCumulative and non-cumulative

participating and non-participating

Redeemable and non-redeemable

Convertible and non-convertible

Equity share

Acc. To sec 43 of the company act, 2013 all share of a company which are not preference shares are equity share or ordinary share. Equity share constitute the major portion of the share of a company having share capital.

The dividend on equity share, and the return of capital in case of winding up of the company, is paid on equity shares after it has been paid on preference share.

Preference sharePreference share are those share which

have the following rights:They have a right to receive dividend

at a fixed rate before any dividend paid to equity shareholder

When the company is wound up, they have a right to the return of capital before that of equity share holder

Types of preference share Cumulative preference share : they have

a right to get a fixed amount of dividend at a fixed rate. If the current year profit is not sufficient to the dividend on these share then the accumulated arrear of dividend is paid to them if any dividend is declared in the subsequent year.

Non-cumulative preference share : carry the right to get fixed amount of dividend at fixed rate before any dividend is paid on other types of shares. But these share do not carry the right to receive any arrear of the dividend in a particular year in the company has not declared any dividend in the previous year or years .

Convertible preference share: The holder of these share have a right, if he so desire to convert his share, within a specified period or by a specified date, into equity shares.

Non convertible preference share : The holder of these share does not have the right to covert his share into equity shares.

Redeemable preference share : Share on which the capital can be paid back to the holders after a specific time during the life time of the company are called redeemable shares

Irredeemable preference share : preference share of a company which cannot be redeemed are called irredeemable preference shares.

Participating preference share : These share have right to receive the dividend at the specified rate, also carry the right to participate in receiving a share in the other profits of the company.

Non participating preference share : These share have right to receive the dividend at a fixed rate, but do not carry the right to participate in receiving any share in the company’s other profit.

Distinction between equity and preference share Right of dividend Return of capital Rate of dividend Redemption Voting right Necessity Types Face value

Deferred share :-

“Deferred share are also called “founder” or “promoters”, which are allotted to the promoters of the company in consideration of their services rendered by them in bringing about the company.”

Stock “By stock is meant the total

amount of the fully paid up value of shares which can later be divided into small units so that any amount of the share value can be transferred to others.”

Characteristics of Stock A company cannot invite the public to

buy its stock. Only fully paid shares of a company can

be converted into stock. The companies articles must have a

provision to convert shares into stock. The stock has no definite number. The stock-holder of a company is paid

a dividend by the company. The stock of company, like its shares,

is a part of the company’s capital.

Conversion of Shares Into StockWhen a company has received the fully paid value of its shares, it can convert the amount received into its ‘stock’. The statutory provisions of converting shares into stock are as follows:

(1) A company may by ordinary resolution- (a) convert any paid-up shares into stock; and (b) reconvert any stock into paid -up shares of any denomination.

(2) The holders of stock may transfer the same, or any part thereof, in the same manner as, and subject to the same regulations under which, the shares for which the stock arose before the conversion have been transferred.

(3) The holders of stock have the same rights, privileges and advantages as regards dividends, voting at the company’s meetings and other matters as if they held the shares from which the stock arose.

(4) Such regulations of the company as are applicable to fully paid-up shares shall apply to its stock.

(5) A company cannot offer its stock to the public; it can only convert its paid-up shares into stock.

Procedure for converting shares into stock :

Passing an Ordinary Resolution in the Meeting of Shareholders: Under the provisions of Section 61 of the Act, a company with limited liability and having share capital may, if it is authorized by its Articles, convert its fully paid-up shares into stock by passing an ordinary resolution to that effect in the general meeting.

Closing the Transfer Books and Informing the Shareholders:

After having passed the resolution to convert shares into stock, the books are closed, and the shareholders are informed to submit their share certificates to the company. The company issues a receipt to each shareholder who has deposited his share certificate with the company. The receipt is later exchanged for stock certificate by the concerned shareholder.

Issuing the Stock Certificate and Opening the Register:

When the stock certificates are issued, the necessary entries are made in the register of the company’s members. A new register listing the company’s stock- holders is opened like the register of the company’s members.

Informing the Registrar of the Conversion: The company needs to inform the registrar of Companies about the conversion of shares into stock within thirty days after the conversion is made.

Voting Rights of Preference Shareholders

Issue Related to Their Interest: Holders of preference share have the right to vote on such issues as are directly related to their interest.

Non-payment of Dividend: If the holders of cumulative preference shares have not been paid any dividend for at least two years preceding the commencement of the company’s meeting, or if the holders of non-cumulative preference shares have not been paid any dividend for not less than two years, or for an aggregate period of three years comprised in the six years ending with the expiry of the financial year preceding the commencement of the meeting, then such shareholders are entitled to vote on every resolution placed before the company at any meeting.

Voting Rights of Equity Shareholders

Every equity shareholder has the right to vote on every resolution placed before the company at any meeting. Also the voting right of every equity shareholder is proportionate to his contribution to the paid-up capital of the company.