Companies Act 1956: Share Capital

Share Capital and membership

Section 80 on-wards:

Share means the part of the share capital and share denotes the ownership of the company. Every person having the share in the company bears some risk in the company. Companies can issue two types of shares.

• Equity shares
• Preference Shares

Preference Shares: Section 84, and 85

1. The preference shares are the shares which have the preferential right over the company in respect of dividend and redemption.
2. The preference shares of a company are different from the equity shares and the preference share holders get a fixed rate of dividend.

Equity shares:

• Equity Shares are the shares which are not having any preferential right over the payment of dividend or redemption money.

Issue of Shares by Company:

• The shares of public company can be issued to public.
• The shares of a public company are freely transferable.
• The shares of a private company are not freely transferable and these can be transferred by the members only with the approval of the company.
• The company may issue its shares at discount or at premium.

Issue of shares at discount:

• Company may issue its shares at discount if it is permitted by its articles.
• The maximum rate is 10% of the face value however the company may issue shares at a higher discount with the approval of central govt.
• When the shares are issue at discount then discount can be written off against P/L of company or General Reserve or Capital Reserve or Securities Premium.

Issue of Shares at Premium:

• Companies may issue their shares at premium.
• The amount of premium will be decided by the company itself.
• The company must be authorized by its articles to issue the securities at premium.
• The amount of premium can be used by the company for the following purposes.
•        For writing off preliminary expenses
•        For issue of fully paid up bonus shares
•        For buy back of shares
•        For writing off discount on issue of shares
•        For payment of premium on redemption

The amount of premium is transferred to a special account known as securities premium and it is shown on the liabilities side of the balance sheet under the head reserves and surplus.

Right shares:

Right shares are the shares offered by any company to its existing shareholders in the ratio of their shares hence the voting powers of the shareholders are not disturbed.

The shareholders have an option to purchase these shares or they may refuse to take these shares.

For right shares SEBI guidelines must be fulfilled.