Share Capital

Question 1

Whar are shares and share certificates

Answer 1

Shares and share certificates have several characteristics.
▪ A share is a form of moveable property (asset), carrying rights and obligations, and is
transferable from one person to another.
▪ A share must be paid for in full when it is allotted to shareholder.
▪ Every share shall be distinguished by its distinctive number.
▪ A certificate issued in physical form under signature of authorised officer of the company
(as may be specified) or issued in book-entry form (i.e. Electronic) shall be the main
evidence of the title of person to such shares.
▪ Manner of issue of certificate of shares, form of certificate & other matters may be specified

Question 2

Authorised Share Capital:

Answer 2

▪ Maximum amount of shares (each class) that company may issue
▪ Amount of the authorized share capital has to be specified in MOA

Question 3

Issued and paid up share capital

Answer 3

▪ Nominal (Face) value of shares (in each class) that have been issued to shareholders.
▪ Issued share capital may be less than authorised share capital, but cannot exceed it.

Question 4

Adverts and notices about Authorized Share Capital

Answer 4

▪ If a company mentions its authorized capital in any advertisement or notice or statement, it
shall also mention the amount of its paid up capital in equally conspicuous letters & equally
prominent position
▪ Any company which makes default in complying with above requirements and every
officer who is party to the default shall be liable to a penalty not exceeding level 1

Question 5

Fully paid shares

Answer 5

A company having share capital shall issue only fully paid shares.
Previously partly paid shares were allowed but now companies can only issue fully paid share
Nominal value
This is face value of shares, also called par value and stated value.
Market value
Value at which share are traded at stock exchange etc (usually higher than nominal value)

Question 6

Kinds and classes of shares

Answer 6

▪ A company limited by shares may have different kinds of share capital and various classes
under each kind.
▪ Company can have more than one kind of share capital only if it has authorized capital for
all those kinds

Question 7

Ordinary Shares

Answer 7

Voting Power
Dividend: Entitled to remaining profit after
payment of preference dividend
Winding Up: Receive payment (if any) after
paying nominal value to the
preference shares
Different Classes:May be on the basis of
- Different voting rights
- Rights disproportionate to paid
up shares
- No voting rights
- Different entitlements of
dividend/right/bonus shares

Question 8

Preference Shares

Answer 8

Voting Power: Normally Not
Dividend:- Entitled to receive dividend before
ordinary shareholders
- Percentage of Dividend is normally
fixed (defined)
Winding Up:- They have prior right of return of
nominal value
- But no further share in surplus
Different Classes: May be on the basis of
- Cumulative preference shares
(previous missed dividend also paid
in year of profit)
- Non-cumulative preference shares
- Redeemable / Irredeemable
- Convertible to ordinary shares

Question 9

Procedure for variation in rights

Answer 9

▪ Can only be made by alteration of AOA through special resolution
▪ If variation affects the rights of any particular class, it can only be passed if 3/4th majority
of that class approves that variation.

Question 10

Right to challenge the variation in rights

Answer 10

▪ Any member(s) of affected class representing at least 10% shares of that class may apply to
court for an order against resolution
▪ Such application should be filed within 30 days of resolution.
▪ Court shall declare resolution null and void if it feels that either;
- Company withheld certain facts (that could lead towards non passing of resolution)
while getting the resolution passed; or
- Change is prejudicial (harmful) to the interest of members,
▪ Decision of court shall be final and no appeal can be filed against it
▪ A copy of court order shall be filed to registrar within 15 days.

Question 11

Alteration in capital clause

Answer 11

▪ Co limited by shares, (if authorised by AOA), may alter capital clause of its MOA by passing
Special Resolution to:
- Increase its share capital by such amount as it thinks fit;
- Cancel that part of its authorized capital which has not been paid up till the date of
cancellation
(cancellation shall not affect rights of paid up shareholders)
- Consolidate shares into larger amount than fixed by MOA
- Sub-divide shares into smaller amount than fixed by MOA
▪ Company shall file resolution and altered copy of MOA with the registrar within 15 days of
passing the same (Otherwise resolution shall not be effective and shall lapse)
▪ New shares issued by the company (due to consolidation or sub division) shall rank equally
with existing shares of the company.