Share capital and debentures:
Kinds of share capital:
The share capital of a company limited by shares shall be of two kinds, namely,
- Equity share capital-
- With voting rights, or
- With differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed, and
- Preference share capital;
Provided that nothing contained in this act shall affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this act.
Explanation – For the purposes of this section-
- Equity share capital, with reference to any company limited by shares, means all share capital which is not preference share capital;
- Preference share capital refers to any company which is limited by shares means the part of the issued share capital of a company which carries or would carry a preferential right with respect to:
- Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax; and
- In case of winding up, repayment or repayment of capital or the amount of share capital paid up or deemed to have been paid up. Preferential right to the payment of any fixed premium or a premium on a fixed scale that has been specified in the memorandum or articles of the company.
- A capital amount may be deemed to be the preference capital, in spite of that, it has been entitled to either or both of the following rights, namely;
- That in respect of dividends, in addition to the preferential rights to the amount specified in sub-clause (a) of clause (ii), whether fully or to a limited extent, it has a right to participate, with capital which is not entitled to the preferential right aforesaid
- That in respect of capital, in addition to the preferential right to the repayment, on a winding up, of the amount specified in sub-clause (b) of clause (ii0, it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.
Nature of shares or debentures:
The debentures or shares of any member in a company may be movable property which is transferable in a manner provided by the articles of a company.
Numbering of shares:
The company will be having a share capital based on every share, which shall be distinguished by that distinctive member;
Nothing in this section may apply to a share which is held by a person whose name been entered as a holder of a beneficial interest in such share in the records of a depository.
Certificate of shares:
- A certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.
- A duplicate certificate of shares may be issued, if such certificate-
- Is proved to have been lost or destroyed; or
- Has been defaced, mutilated or torn and is surrounded by the company.
- Notwithstanding anything contained in the articles of a company, the manner of an issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.
- Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.
- If a company with intent to defraud issues a duplicate certificate of shares, the company may be punishable with a fine amount which may not be less than five times the face value of the shares involved in the issue of the duplicate certificate but that may extend to ten times the face value of such shares or ten crore rupees whichever is higher and every officer of a company who is in default may be liable for action under the section 447.
Subject to the provisions of section 43 and sub-section (2) of section 50,
- Every member of a company limited by shares and holding equity share capital therein shall have a right to vote on every resolution placed before the company; and
- His voting right on a poll shall be in proportion to his shares in the paid-up equity share capital of a company.
Every member on a company which is limited by shares and holding any preferences share capital with respect to such capital has a right to vote only on the resolution which has been placed before the company that actually affects the rights directly that is attached to his preference shares. Any resolution for winding up of a company or for reduction or repayment of its equity or preference share capital and the voting right on a poll may be in proportion to his share in the paid-up preference share capital and the voting right on a poll may be in proportion to his share in the paid-up preference share capital of a company;
Provided that the proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares:
The dividend with respect to a class of preference shares would not be paid for a period of two years or more, such class of preference shareholders will have a right to vote on all the resolution which has been placed before the company.
Variation of shareholders rights:
- The share capital of a company has been divided into different classes of shares, the rights which are attached to the shares of any class may vary with the consent in writing of the holders of not less than 3/4ths of the issued shares of that class or by means of a special resolution that is passed at a separate meeting of the holders of the issued shares of that class,
- If provision with respect to such variation is contained in the memorandum or articles of the company; or
- In the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the terms of the issue of the shares of that class:
- If one class of shareholders affects the rights of other class of shareholders, affects the rights of any other class of shareholders, the consent of 3/4ths of such other class of shareholders can be obtained and the provisions of this section may apply to such variation.
- The holders of not less than ten percent of the issued shares of a class may not consent to such variation or vote in favour of the special resolution for the variation, they may have applied to the tribunal to have a variation which is cancelled and if any such application is made, the variation would not have effect unless and until it has been confirmed by the tribunal.
- After the date of the consent been given or the resolution had been passed, the application under this section shall be made within a period of twenty-one days as the case may be and that may be made on behalf of the shareholders entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.
- The decision of the tribunal on any application under sub-section (2) shall be binding on the shareholders.
- The company would have filed a copy thereof with the registrar within a period of thirty days of the date of the order of the tribunal.
- If any default been made in complying with the provisions of this section, the company would be punishable by a fine amount which shall not be less than 25 thousand rupees but that may be extended up to five lakh rupees and every officer of a company who is in default would be punishable with the imprisonment for a term which mat extends with fine which shall not be less than twenty five thousand rupees but which may extend to six months or with a fine amount that should not be less than twenty five thousand rupees but extends to five lakh rupees or with both.
Call on shares of same class to be made on the uniform basis:
For further share capital, the call for them is made on the share of the class; those calls can be made on a uniform basis on all the shares falls under that class.
Explanation: Same nominal value shares on different amount been paid up would not be deemed to fall under the same class.
Company to accept unpaid shares capital, although not called up:
A company which is authorized by the articles, accept from any member the whole or part of the amount remaining unpaid on any shares held by him, even if no part of the amount has been called up.
A member of a company which is limited by shares would not be entitled to any voting rights in respect of the amount paid by him under sub-section (1) until that amount got called up.
Payment of dividend in proportion to the amount paid up.
If a company authorized by its articles, pay dividends in proportion to the amount paid up on each share.
Application of premium received on issue of shares:
Whether cash or not, the company issues shares at a premium, a sum which equals to the aggregate amount of the premium shall be received on those shares and transferred to securities premium account and the provisions. This act relates to the reduction of share capital of a company, except as provided in this section, can apply if the securities premium account were the paid-up share capital of a company.
Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company–
- The issue of unissued shares of the company to the members of the company as fully paid bonus shares;
- Preliminary expenses of the company have to be reduced;
- Deduction in the expenses of, or the discounts allowed on or the commission paid, any issue of debentures or shares of a company;
- Own shares or securities been purchased under section 68.
The premium account of securities, in spite of anything contained in the sub-section (1) can be applied by any such class of companies as may be prescribed and whose financial statement complies with the accounting standards prescribed for such class of companies under the section 133.
- Paying up the unissued equity shares of the company will be issued to members of the company as fully paid bonus shares, or
- Expenses are writing off or the commission paid or discount allowed on any issue of equity shares of the particular company; or
- Purchasing of own shares or other securities under section 68.
Prohibition on an issue of shares at discount:
A company cannot issue shares at a discount except as provided in section 54.
Any share which has been issued by a company at a discounted price shall be void.
A company which contravenes the provisions of this section, the company would be punishable with a fine amount that should not be less than one lakh rupees but which may extend up to 5 lakh rupees and every officer who is in default would be punishable with an imprisonment for a term which extend up to 6 months or with a fine amount that should not be less than one lakh rupees but can extends up to 5 lakh rupees or with both.
An issue of sweat equity shares:
In spite of anything contained in section 53, a company can issue sweat equity shares of a class of shares which has been already issued, if the following conditions are fulfilled, namely:
- The issue has been authorized by the special resolution which is passed by the company;
- The resolution that specifies the current market price, consideration, number of shares, and the class or classes of directors or employees to whom such equity shares can be issued;
- At the date of such issue, not less than one years has elapsed since the date on which the company had commenced business; and
- The equity shares of the company are listed on a recognized stock exchange, the sweat equity shares are issued in accordance with the specific regulations made by the securities and exchange board in this behalf and if they are not listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.
The limitations, restrictions, rights and the provisions as for the time being applicable to equity shares may be applicable to sweat equity shares which are issued under this section and the holders of such shares may rank pari passu with other equity shareholders.
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