TYPES OF SHARES

TYPES OF SHARES: These are two type of shares

1. Preference Shares:-Those shareholder which have preferential right in following matter

a. They get assured preferential dividend at fixed rate during the life of company. b. They are

having preferential right to be paid first in case of winding up of company, from other

shareholders.

According to section 43 of companies Act 2013, person holding preference shares are called

preference shareholders. However, Holder of preference share does not have voting rights. The

company Act 2013, prohibits the issue of preference share which is irredeemable. Preference

shares are cumulative and Non-participating unless otherwise stated. According to Company

Act, preference shares which are redeemable within 20 years can only be issued.

Types of Preference Shares.: These are following type:-

a. Cumulative Preference Shares

 A cumulative preference share is one that carries the right to a fixed amount of

dividend every year. If current year profit is insufficient, it is paid from future profit.

So dividend is accumulated unless it is paid in full and such shares are called

Cumulative Preference Share.

 The arrears of dividend are shown in balance Sheet as ‘Contingent Liabilities’.

 In India ‘Preference shares’ are always cumulative unless otherwise stated.

 If dividends are in arrears for a period not less than two year, holders of such shares

will be entitled to take part and vote on every resolution in general body meeting of

shareholders.

b. Non-Cumulative Preference Shares

 These are those shares which do not carry right to get divided accumulated or carry

forward if profit of current year are insufficient. In other words we can say if

company cannot pay dividend in one year then right of shareholder to receive

dividend in future period expires.

 If dividend remains arrears for a period not less than two years or an aggregate

periods of not less than three years comprised in six years ending with the expiring

of financial year, holder of such shares will be entitled to take part and vote on every

resolution at any meeting of shareholders.

c. Participating Preference shares :--These shareholders have following rights

Right to get fixed percentage of dividend.

 Right to participate on stipulated profit after equity shareholders have been paid at

stipulated rate.

 In case of winding up of company, these shareholder also get right to receive pre-

determined portion of surplus after equity shareholders have been paid off.

d. Non participating preference Share:- These shareholders only get fixed percentage of

dividend every year. They don’t have right to participate in profit and surplus in case of

winding-up of company.

e. Redeemable Preference Shares.: These are shares that company may issue on the

condition that company will repay after the fixed period or even earlier at company

discretion.It is governed by section 55 of the companies Act 2013.

f. Non-Redeemable Preference shares:- Those shares which are not redeemable are called

non redeemable preference shares. According to section 55, no company limited by shares shall

issue irredeemable preference share or preference shares redeemable after expiry of 20 years

from the date of issue.

g. Convertible Preference Shares:- These shareholder have right to convert their shares into

equity shares at their option according to terms and conditions of their issue.

h. Non-Convertible preference Shares :These shareholders do not have right to convert their

shares into equity shares.

2 Equity Shares (section 43(a) :-These are those shares which are not Preference Share. They

don’t have preferential right in matter of dividend or repayment of capital.On Equity shares

dividend is recommended by Board of Directors and dividend may vary from year to year.These

shareholders carry voting right in general meeting of shareholders. Company (Amendment) Act

2000, permit issue of equity share capital with differential right as to dividend, voting or

otherwise.

3 SHARES Issued of for cash :- To Issue shares, private companies raise funds from private

placement of shares. Public companies for raising funds issue prospectus and invite general

public to subscribe for its shares. On basis of prospectus, applications are deposited in

scheduled bank by interested parties along with amount payable at the time of application.

First installment along with application is called application money. As per section 39 of the co

act 2013, application money cannot be less than 5% of face value of shares.

 SEBI Guidelines require the shares issued are made fully paid-up within 12 months of

the date of allotment if the size of the issue is up to 500 crores.

 As per SEBI Guidelines, the minimum application money to be paid by an applicant along

with the application shall not be less than 25% of the issue price.

IMP. NOTE -- matters related to issue and transfer of securities will be administered by the

SEBI and not by the Company Law Board(CLB)

o According to company Act 2013, a company can not proceed to allot shares unless

minimum subscription is received by company.

o Share application money is converted into share capital after board of director approved

for allotment of shares.

Minimum Subscriptions :- A public limited company cannot make any allotment of shares

unless the amount of minimum subscription stated in prospectus has been subscribed. Amount

of minimum subscription to be disclosed in prosecutes by Board o f Director taking into account

following

1. Preliminary expenses of company

2. Commission payable on issue of shares.

3. cost of fixed assets purchased or to be purchased

4. Working capital requirement of company.

5. Any other expenditure for day to day operation of business.

 According to guidelines of Securities Exchange Board of India(SEBI) a company must

receive a minimum 90% subscription against whole issue before making any allotment

of shares or debenture to public

 If company is not able to receive minimum subscription of 90% of the issue, the entire

subscription shall be refunded to applicants within 15 days from closures of issue.

 In case of delayed refund interest for the delayed period as per section 73 of companies

Act shall be payable @ 4% to 15%(having regard to the length of the period in delay) on

the amount of refund.

 The companies Act 2013 requires that the period of at least one month must be

between two calls.

 The company has right to reject or accept an application fully or partially.