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Company Law » Share and Share Capital » Kinds of share capital


Share and Share Capital

Kinds of share capital


What is share?

As per Section 2(84) of the Companies Act, 2013, ’share’ means a share in the share capital of a company and includes stock.

Nature of shares -

  • A share is a right to participate in the profits made by a company.
  • A share is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities.
  • share or debentures or other interest of any member in a company is a movable property transferable in the manner provided by the articles of the company.
  • In India, a share is regarded as goods. 

Kinds of share capital [Section 43]

Broadly, there are two kinds of share capital of company limited by shares:

  • Equity share capital - shares which are not preference shares are termed as equity shares.
  • Preference share capital - Means an instrument which have preferencial voting right to dividend payment and preferencial repayment during winding up of company.

Equity shares are further classified into two kinds -

  • Equity shares with same voting rights.
  • Equity shares with differential viting rights as to dividend, voting etc

Kinds of share capital [Section 43]

The equity shareholding are as under:

  • Right to vote
  • Right to receive dividends
  • Right to transfer freely without any restriction. 

EQUITY SHARES WITH DIFFERENTIAL VOTING RIGHTS (DVR) 

  • Section 43 enables companies to issue equity shares with differential rights as to dividend, voting rights etc.
  • Only a company limited by shares can issue equity shares with differential rights as to dividend, voting or otherwise. 

Terms and Conditions of issuing shares with differential rights -

Rule 4 of Companies (Share Capital and Debentures) Rules, 2014 states the conditions regarding shares with differential voting rights. which are following:

(i) Articles of association of the company shall authorizes the issue of shares with differential rights.

(ii) Pass ordinary resolution at general meeting. In case of listed co. such resolution shall be passed through postal ballot. 

(iii) Limit - 

(iv) The company has not defaulted

  • In filing financial statements and annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue such shares.
  • In the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend.
  • the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon.

A company may issue equity shares with differential rights upon expiry of 5 years from the end of the financial year in which such default was made good.

(v) The company has not been penalized by Court or Tribunal during the last 3 years of any offence under the RBI Act, 1934, the SEBI Act, 1992, SCRA, 1956, FEMA, 1999 or any other special Act.

(vi) The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice versa. 

(vii) The Board of Directors are required to disclose the details of the issue of equity shares with differential rights in the Board’s Report 

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Company Law


Chapter's Name:

1. Introduction to Company Law
2. Incorporation of Companies
3. MOA and AOA of Company and Its Alteration
4. Prospectus And Allotment of Securities
5. Share and Share Capital

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