The term ‘share capital' refers to the amount of capital raised (or to be raised) by a company through the issue of shares.
Features of share capital
The main features of share capitals are
1. Share capital can be raised only by companies limited by shares and registered with share capital
2. 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.
3. Share capitals (except in the case of redeemable preference share), one raised, cannot be returned by the company to the shareholders as long as it continues to exist, It can be returned only at time of the winding up of the company.
Classes Types or Kinds of Share Capital:
The various kinds or sub-divisions of share capital are:
1. Authorised Capital, Registered Capital or Nominal Capital:
Authorised capital is the sum stated in the capital clause of the memorandum of association as the capital of a company. It is the maximum amount of share capital, which the company is authorized by its memorandum of association to raise through the issue of shares. It is called authorized capital, because it is the capital, which a company is authorized to raise from the public. It is called registered capital, because it is the capital with which a company is registered. It is also called nominal capital, because it is not the real or actual capital of a company. A company has this capital only in name. Further, it is the total nominal value of the shares, which a company can Issue.
2. Issued Capital:
A company, usually, does not need the whole of the authorized capital in the beginning. It needs only a part of the authorized capital. So, in the beginning, it, usually, issues only a part of the authorized capital to the public for subscription. That part of the authorized capital to the public for subscription. The part of the authorized capital which is issued or offered, for the time being, to the public for subscription is, usually, called the issued capital.
3. Subscribed Capital:
There is no guarantee that the entire capital issued by a company to the public for subscription will be subscribed or taken up by the public. The public may subscribe in full or in part. That part of the issued capital, which is subscribed or taken up by the public, is called subscribed capital.
4. Called-up Capital:
Generally, a company does not need the entire face value of the shares subscribed by the public immediately. So, it calls or demands only a part of the nominal value of the shares subscribed or taken up by the public immediately and collects the balance later, as and when necessary, by making further calls. That part of the subscribed capital, which has been called up or demanded by the company is called called-up capital.
5. Paid -up Capital:
There is no guarantee that all the subscribers pay the full amount called up or demanded from them. In fact, in many cases, some of the subscribers do no pay the full amount called up from them. That means, often, only a part of the called-up capital may be paid by the subscribers or shareholders. That part of the called-up capital, which has been actually paid, by the subscribers or shareholders is called paid-up capital.
A share is 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 other rights given by the articles. A share can be defined as, "a share is a fractional part of the capital of a company which forms the basis of certain rights of a member of the company as well as his liabilities vis-à-vis (i.e., as against) the company"
Features of Shares:
The main features of shares are.
i. A share is not a sum of money. It is only an interest or right, measured in .a sum of money, to participate in the profits of the company during its life and in the assets of the company when it is wound up.
ii. A share is given a face or nominal value, and is paid for in money or money's worth.
iii. The person who holds the share or shares of a company is called a shareholder or member of the company.
iv. The title of a member to a sharp is evidenced by the share certificate issued by the company under its Common seal.
v. Each share in a company having share capital is distinguished by its specific or appropriate number.
Kinds or Types of Shares:
A company issue different types of shares in order to satisfy the requirements of different classes of investors and to collect more capital. A public company can issue only two types of shares, viz., (1) Preference Shares. (2) Equity Shares.
1. PREFERENCE SHARES.
Meaning of Preference shares:
Preference shares are shares, which have preferential rights (i.e., first priority or preference over other kinds of shares) in respect of payment of dividend during the existence of the company, and also in respect of repayment or refund of share capital in the event of the winding up of the company. In fact, it is because of their preferential rights in respect of the payment of dividend and repayment of capital that these shares are 1 mown as preference shares.
Types of Preference Shares:
1. Cumulative Preference Shares: The holders of cumulative preference share are entitled to receive a fixed percentage of dividend before anything is given, tot other classes of shareholders. Apart from this right, in the case of these shares, if the company has no profits or inadequate profits in any year to declare dividend, the arrears of dividend would accumulate and become payable out of the future profits before anything is given to other classes of shareholders.
2. Non-Cumulative Preference Shares: Non-Cumulative preference shares are entitled to a fixed rate of dividend in the first instance (i,e., before anything is given to other types of shareholders). But they are entitled to receive the fixed percentage of dividend in the first instance only for the year or years when the company earns sufficient profits and dividend is declared. In case the company has no or inadequate profits in any year to declare dividend, then, the arrears of dividend do not accumulate and become payable out of future profits in the case of these shares.
3. Participating Preference Share: The holders of these shares, in addition to a fixed percentage of dividend, are also entitled to participate in the surplus profits of the company along with the equity shareholders. Only if there is a specific or special provision in the articles of association of the company giving the holders of these shares special rights to participate in the surplus profits. They are also entitled to participate in surplus assets of the company on its winding up.
4. Non-Participating Preference Share: The holders of non-participating preference shares will get only a fixed rate of dividend, of course, in the first instance (i.e., before any dividend is paid to equity shareholders). But they are not entitled to participate in the surplus profits of the company.
5. Convertible Preference Shares: The holders of convertible preference shares are given the rights to convert their shares into equity shares later on (i.e., after a certain period).
6. Non-Convertible Preference Share: The holders of non-convertible preference share are not given the right to convert their shares into equity shares later on.
7. Redeemable Preference Shares: Redeemable preference shares are those preference shares, which can be redeemed (i.e., returned or paid back) even during the existence of the company. These shares can be redeemed as per the terms of issue either at a definite date after the expiry of a stipulated (fixed) period or at the option of the company, i.e., whenever the company wants, after giving proper notice.
Redeemable preference shares can, be redeemed by a company. But their redemption is subject to the conditions
a) The articles of association of the company should provide for the issue and redemption of these shares.
b) Only fully paid shares can be redeemed. Partly paid shares cannot be redeemed.
c) They can be redeemed only out of the profits of the company which would be otherwise available for dividend (i.e., out of the divisible profits of the company) or out of the proceeds of fresh issue of shares made for the purpose of redemption.
d) Any premium paid on their redemption must be paid out of the profits of the company or out of the company's share premium account.
8. Irredeemable Preference Shares: Irredeemable preference shares are those preference Share, which are not (i.e. refundable) until the company is wound up.
2. EQUITY SHARES.
Equity snares are those, which are not preference shares. In other words, these are shares, which do not enjoy any preferential right either in respect of payment of dividend or in respect of the repayment of capital at the time of the winding up of the company. These shares are knows as equity shares, as they are the 'ownership shares' conferring the ownership of the company on the holders of these shares, i.e., the holders of these shares are the real owners of the company.
Differences between Preference Shares and Equity Share:
There are many differences between preferences shares and equity shares. The main differences between them are:
1. Generally, the face value of preference shares is relatively higher than that of equity shares.
2. Preference shares have priority over equity shares in the payment of dividend as will in the repayment of capital in the event of the winding up of the company.
3. The rate of dividend on preference shares remains fixed from year to year. But the rate of dividend on equity shares varies from year to year depending upon the amount of profits available for distribution.
4. The rate of dividend on preference shares, in generally, fixed by the articles of association. But the rate of dividend on equity shares is dependent on the discretion of the board of directors.
5. Preference shares cannot participate in the surplus profits and in the surplus assets in the event of the winding up to the company. Even the participating preference shares can participate in the surplus profits and in surplus assets only if there is a specific provision to that effect in the surplus profits and in surplus assets always.
6. Except those preference shares which are issued as non-cumulative, all preference shares are cumulative. That means, preference shares can get the arrears of dividend. But equity shares cannot get the arrears of dividend.
7. As the rate of dividend on preference shares is fixed or stable, the market value of preference shares remains more or less stable. On the other hand, as the rate of dividend on equity shares fluctuate from year to year, the market value of equity shares fluctuates greatly from year to year.
8. Preference shares, i.e., redeemable preference shares, are redeemable during the existence of the company. But equity shares are not redeemable during the life of the company.
9. Preference shares have limited voting rights. They have voting rights only on those matters, which directly affect their interests. On the other hand, equity shares have full voting rights. They can vote on any matter, which may come up before the company.
10. As there is steady dividend like rent, preference shares capital is considered as rentier capital. On the other hand, as there is much risk in equity shares, equity share capital is considered as risk capital.
11. As there is not much risk in preference shares, preference shares appeal to cautious investors who do not want to assume risks. On the other hand, equity shares appeal to adventurous investors who are prepared to assume risks.
12. The holders of preference shares do not have much control over the management of the company. On the other hand, the holders of equity shares have much control over the management of the company.
Issue of Shares or Terms of Issue of Shares :
Issue of Shares at Par:
When shares are issued by a company to the public at a price equal to their face value (i.e., the price written on the face of the share certificates), they are said to be issued at par. For example, if shares of the face value of Rs.10 each are issued by a company to the public at Rs.10 each, the shares are said to be issued at par.
Issue of Shares at a Premium:
When a company finds at there is a great demand for its shares, it may issue shares at a premium. Issue of shares at a premium means the issue of shares by a company at a price higher than the face value of the shares. (The difference between the issue price, i.e., the price at which the shares are issued, and the face value of the shares is called share premium) for example, when shares of the face value of Rs.10 each are issued at a price of Rs.12 per share, the shares are said to be issued at a premium.
Issue of shares at a Discount:
When a company wants to raise further capital at a time when its shares are not demanded, and so, quoted in the market below par, it may issue shares at a discount.
Issue of shares at a discount means the issue of shares at a price less than the face value of the shares. (The differences between the face value and the issue price of the shares are the discount allowed on the shares. The discount allowed is a capital loss to the company.). For instance, when shares of the face value of Rs.10 each are issued at Rs.9 each, the shares are said to be issued at a discount.
If a public company issues additional or further shares at any time after the expiry of two years of its formation or one year of the first allotment of shares, which ever is earlier, such additional shares must be offered to the existing equity shareholders of the company in proportion to the capital paid up on their shares, such shares are called rights shares. Such shares are called rights shares, as the existing equity shareholders are given preferential rights (i.e., first preference) in the allotment of such shares.
The right of existing equity shareholders to be offered new shares before they are offered to the public is called shareholders' right of preemption.
Object of Right Issues:
The object of rights issue is that there should be an equitable distribution of shares among the existing equity shareholders and the proportion of holding of shares by the existing equity shareholders should not be affected by the issue of the additional shares.
Bonus shares are shares issued by a company out of its accumulated reserves or profits to the existing equity share holders either as fully paid shares or partly paid shares free of cost.
Differences between Bonus Shares and Rights Shares:
1. Bonus shares are issued to the existing members (i.e. free of costs. But rights shares are issued to the existing member for money.
2. Bonus shares can be issued by a company only when it has sufficient. Accumulated reserves or profits. But the issue of rights shares is not at all related to the availability of accumulated reserves or profits.
3. The purpose of bonus issue is to bring the issued capital of the company in line with the true worth of the undertaking so that the net profit of the company may not appear to be excessively high as compared to its paid -up capital. But the purpose of rights issue is to raise additional share capital for the company.
4. For the issue of bonus shares, the permission of the controller of capital issues is necessary; whatever may be the amount of issue of bonus shares. On the other hand, for the issue of right shares, the permission of the controller of capital issues is necessary only when the issue exceeds Rs.1 crore in a period of 12 months.
5. For the issue of bonus shares, sanction of the shareholders is necessary always. But for the issue of rights shares, the sanction of the shareholders is necessary only when the rights issue involves increase in the authorized capital. ,
Stock can be defined as, "stock is a bundle of fully paid shares put together for convenience". In other words, it is the aggregate of fully-paid shares of a company consolidated or put together for the purpose of facilitating its division and transfer in fraction of any denomination or amount.(i.e., for helping the stock holders to sub-divide and transfer their stocks in fractions or parts of any amount, even odd amount).
Features of Stock:
The main features of stock are:
· A stock is the consolidated amount of fully-paid shares. In other words, it is the capital which consists of fully-paid shares put together for convenience.
· There cannot be an original issue of stocks by a company. Only fully paid shares can be converted into stock.
· A stock may be split up and transferred by the holders in fraction of any denomination or amount.
· Stocks are not divided into uniform or equal denomination.
· Stocks do no bear distinctive numbers.
· The title of the holders of stocks is represented by stock certificates issued to them. The holders of stock are also the members of a company.
· The stock holders enjoy the same rights and privileges which are enjoyed by the shareholders
· Stock can be reconverted into shares of any denomination.
Advantages of Stock Holders and the company-
Stocks are advantageous to the stockholders and the company
The main advantages of stocks to the stockholders are'
1. A stock holders can enjoy all the rights and privileges enjoyed by a shareholder
2. Besides enjoying the rights and privileges of a shareholder, a stock holder has an additional advantage. That is, he can split up or divide and transfer his stock in fractions of any amount, even in odd amount.
3. Stock denotes that the company has recognized the fact that the holder of stock has paid the complete or full payment due from him to the company this recognition will help the stockholder to transfer his stock easily,
The main advantage of the stock to the company is that, as the stocks are not numbered, the company need not keep a detailed record of stocks transferred.
Differences between Shares and Stock:
Shares differ from stocks' in many respects. The main differences between shares arid stocks are:
1. Shares may be fully or partly paid. But stocks are always fully paid.
2. Shares have distinctive numbers, whereas stocks do not have distinctive numbers.
3. A share has nominal value, whereas a stock has no nominal value.
4. Shares are always of equal denominations or values. But stocks can be of various denominations or values.
5. Shares can be issued not only by limited companies having share capital, but also by unlimited companies. But stocks can be issued only by limited companies having share capital.
6. Shares can be issued by a company originally. But stocks cannot be issued by a company originally. But the stocks cannot be issued by a company originally. Only fully paid shares can be converted into stock later on.
7. Consent of the shareholders is not necessary for the issue of shares. But the consent of the shareholders is necessary for the issue of stocks.
8. Shares can be transferred only in round numbers. They cannot be transferred in fraction. But stocks can be transferred in fraction.
9. Registration of share capital with the registrar of companies is necessary before the issue of shares. But stocks can be issuer by just giving a notice of conversion with the registrar of companies.
10. The holder of shares is a member of the company. But the holders of stocks is not necessarily a member of the company.
A share certificate is a document issued by a company under its common seal specifying the number of shares held by a member and the amount paid on each share and evidencing the title of the member to those shares. It is a prima facie evidence of the title of a member of the shares specified therein.
Contents of a Share Certificate:
A share certificate must contain the name and the registered office of the company. It must bear the common seal of the company. It must contain the signatures of at least two directors who are authorized to sign and also the counter signature of the secretary of the company.
In addition to the above, it must contain the following particulars:
1. Name and address of the member
2. Share certificate no.
3. Number and class of shares.
4. Distinctive numbers of the shares included in the certificate.
5. Face value of the amount paid on each share.
6. Date of issue of the share certificate.
7. A revenue stamp.
SHARE WARRANTS OR SHARE WARRANT PER BEARER OR SHARE WARRANTS TO BEARER
A share warrant is a document issued by a public limited company under its common seal to its shareholders in respect of fully paid shares, stating that the bearer of the instrument (i.e., the share warrant) is entitled to the shares mentioned therein. In short, it is bearer document of title to the shares issued by a public limited company to its shareholders.
Advantages of Share Warrants:
Share warrants have certain advantages. They are:
1. Share warrants are bearer instruments. So, they are transferable by mere delivery.
2. A share warrant is regarded as a negotiable instrument under mercantile custom and usage.
3. Share warrants are very helpful in securing loans from banks or other financial institutions.
Limitation of Share holders:
1. There is the risk of loss of ownership of shares represented by a share warrant. As a share warrant is transferable by mere delivery , in case of loss of a share warrant, the finder of the share warrant becomes its owner
2. Heavy stamp duty is payable (n share warrants. On account of these serious limitations, share warrants are not popular.
Differences between a Share Certificate and Share Warrant:
They are many differences between a share certificate and a share warrant. They are
1. Share certificates can be issued by public companies as well as private companies. But share warrants can be issued only by public companies limited by shares.
2. Share Certificates can be issued for fully-paid as well as partly paid shares, whereas share warrants can be issued only for fully paid shares.
3. No authorization by the articles of association is necessary for the issue of shares certificates. But share warrants cannot be issued by a company unless their issue is authorized by the articles of association.
4. No sanction or approval of the Central Government is necessary for the issue of shares certificates, whereas the approval of the Central Government s necessary for the issue of share warrants.
5. Shares represented by a share certificate are considered as qualification shares for the directorship of a company. But the shares represented by a share warrant are not considered as qualification shares for the directorship of a company.
6. The stamp duty payable on the issued of share certificates is just nominal, whereas the stamp duty payable on the issued of share warrants is heavy
7. The name of the bolder of a share certificate appears in the register of members. But the name of the holder of a share warrant does not appear in the register of members.
8. A share certificate is not a negotiable instrument, whereas a share warrant is considered as a negotiable instrument under mercantile usage and custom.
9. A share certificate can be issued originally. But a share warrant cannot be issued originally. Only share certificates can be converted into share warrants later on.
10. A share certificate is only a prima facie evidence of the title of the holder to the shares specified therein. On the other hand, a share warrant is a conclusive evidence of the title of the holder to the shares specified therein, provided he is a bonafide holder for value.
Secretary's duties in connection with the Issue of Share warrants:
o He should make sure that the articles of the company provide for the issue of the share warrants.
o On the receipt of the application for the issue of share warrants, he should check up whether the application is accompanied by the relevant share certificates. He should issue a lodgment ticket to the applicant acknowledging the receipt of the share certificate for the issue of share warrants.
o He should convene a board meeting for the approval of the issue of share warrants.
o He should also make the necessary arrangements for the issue of share warrants.
o On the receipt of the Central Government's approval, he should proceed with the work of preparation of the share warrants. He should get them sealed and signed by the directors and counter-signed by him self.
o He should see that a circular is issued to the applicants asking them tot take delivery of the share warrants in exchanges for the lodgments tickets.
o After the issue or delivery of the share warrants, he should see that the names of such shareholders are struck off from the register of members, and the necessary particulars regarding the issue of share warrants are entered in the remarks column of the register for the members. He must also see that the names of the shareholders to whom share warrants are issued are entered in a separate register called The Register of Share Warrant Holders.
o He should see that the unused share warrant forms are kept in safe custody so as to prevend their misuse.
TRANSFER AND TRANSMISSION OF SHARES
TRANSFER OF SHARES:
When a registered shareholder passed on the property or interest in his shares by sale or otherwise (say) by gift) to another person voluntarily) there is said to be transfer of shares. So, transfer of shares refers to the passing on of the property or interest in the shares by a registered shareholder to some other person voluntarily for a valuable consideration.
TRANSMISSION OF SHARES:
Transmission of shares refers to the passing of property in shares by the operation of law, and not by sale by the original owner, on the happening such events as death, insolvency or lunacy of a shareholder, to his legal representative.
Differences between Transfer of Shares and Transmission of Shares:
The main points of distinction between transfer of shares and transmission of share are:
1. Transfer of shares is the result of a voluntary and deliberate act of the holder of shares, whereas transmission of shares is the result of the operation of law.
2. Transfer of shares is a common or general method of passing of property in the shares from one person to another. But transmission of shares takes place only under certain special circumstances, such as the death, lunacy or insolvency of a shareholder.
3. As the transfer of shares is a voluntary act of the parties, there must be adequate and valid consideration for the transfer of shares. On the other hand, as the transmission of shares is the result of the operation of law, the question of consideration does not arise in the case of the transmission of shares.
4. As the transfer of shares take place for valid consideration, stamp duty is payable in case of Transfer of shares. (The stamp duty is payable on the market value of the shares transferred). But as the transmission of shares take place without any consideration, no stamp duty is payable in the case of transmission of shares.
5. For the transfer of shares, an instrument of transfer is required to be executed by the transferor in favour of the transferee. On the other hand, for the transmission of shares, there is no need for an instrument of transfer. Share are transmitted to the legal representative on his producing mere proof of his title to the shares transmitted.
6. In the case of transfer of shares, as soon as the transfer is complete, the liability of the transferor ceases completely. But in the case of transmission of shares, the shares transmitted continue to be subject to the liability of the original holder to the company.
What is Forfeiture of shares?
Forfeiture of shares means the confiscation (i.e., taking away) of the shares of a shareholder by way of penalty for the non-repayment of any call made on him, and compulsory termination of his membership.
What is Surrender of shares?
Surrender of shares means the return (i.e., giving back) of shares by a shareholder to the company voluntarily for cancellation. It is a shortcut to the long and cumbersome procedure of forfeiture of shares.
What is Lien on shares?
Lien is the right of a person to retain the property of another person in respect of any lawful debt due from the latter to the former. So, lien on shares is the right of a company to retain the shares and even the dividends payable thereon belonging to a shareholder in respect of the outstanding call amount or any other debt (except trade debt) due from the shareholder to the company
What is Blank transfer?
When an instrument of transfer duly completed and signed by the transferor, but the name, address and signature of the transferee left blank, is delivered by the transferor to the transferee along with the relevant share certificate, there is said to be a blank transfer. A blank transfer is so called, because the name, address and signature of the transferee are left blank in the transfer form.
What is Forged transfer?
An instrument of transfer which is not signed by the true owner of shares, but is signed by some other person as the true owner is called a forged transfer. In other words, an instrument of transfer which contains the forged signature of the transferor is called a forged transfer.
What is Certificate of Transfer?
When a shareholder wants to transfer only a part of the shares represented by one share certificate or wants to transfer the shares represented by one share certificate to two or more buyers, he, generally, executes a transfer form [ where only a part of the shares are transferred to one buyer] or two or more transfer forms [ where the shares are transferred to two or more buyers] and sends the transfer form or forms to the company along with the original share certificate for certification. After a preliminary scrutiny of the transfer form or forms and the share certificate, if the secretary is satisfied that everything is in order, he affixes the rubber stamp called "Certification Stamp" and puts his signature. This process is known as Certificate of transfer, and the instrument of transfer is known as "certified transfer" or "certified transfer form".