Discussion on the various aspects of Share capital ?

Question

What is a share? how many types of share capital? what are the various categories of share capital?

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William 1 year 1 Answer 443 views Silver 0

Answer ( 1 )

  1. Form of business in India can be a company , Partnership Firm, LLP etc. Every form of organisation requires fund. In a Partnership Firm, Partners can bring the fund as per their agreement or shares. In a company, situation is different, Capital is introduced by Members in form of shares which have their value.

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    What is share?

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    As per Section 2(84) of the Companies Act, 2013 “share” means a share in the share capital of a company and includes stock. If we interpret from this definition then share means a part of capital of the company. It is a unit in the form of which whole capital of the company is divided.

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    Is there any type of share Capital?

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    Yes, shares of company are divided into two class. As per Section 43 of Companies Act, 2013 share of a company are of two types namely Equity Shares and Preference Shares.

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    What is equity share capital?

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    As per explanation of Section 43 of Companies Act, 2013, “equity share capital”, with reference to any company limited by shares, means all share capital which is not preference share capital;.
    This section classifies equity share capital into two parts which are –
    (i) with voting rights; or
    (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed.

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    Equity shareholders are considered as a member of company which carry voting rights.

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    What is Preference share capital?

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    As per Explanation (ii) of Section 43 of the Companies Act,2013, “preference share capital”, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to,

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    1. 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
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    3. repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not,there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;
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    As we can see Preference share holder can also be considered as creditors of the company. Which have preferential right with respect to payment of their capital or dividend.

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    What are types of Preference Shares ?

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    According to their characteristics, Preference shares can be classified into following categories –

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    1. Cumulative and Non-cumulative Preference shares – Since dividend to Preference Shareholders is paid out of profit. In case of no profit Cumulative Preference shareholder will get in next year in which there is a profit with accumulated dividend of past years. While non Cumulative Preference Shareholders will only get dividend of same year only.
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    3. Redeemable and Irredeemable Preference Shares- Shares which can be redeemed after a fixed period are Redeemable Preference Shares while Shares which can not be redeemed are called Non Redeemable. It should be noted that as per Section 55 of Companies Act,2013 Company can not issue Preference Shares which are not redeemable and redeemable preference shares upto a period of 20 years except some cases.
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    5. Convertible and Non-convertible preference shares- Preference Shares which have right for conversion are called Convertible preference shares while Preference shares without right of conversion are called Preference Shares.
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    7. Participating and Non-participating Preference Shares- The holders of participating preference shares have a right to participate in the surplus profits of the company remained after paying dividend to the ordinary shareholders and preference shareholders at a fixed rate while preference shares which do not have this right are named as non-participating preference shares.
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    Categories of Share Capital?

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     Share capital of the company can also be sub divided into following categories-

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    Authorised Capital– As per section 2(8) of Companies Act, 2013 “authorised capital” or “nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company;
    Means Authorised or Nominal Capital is that amount of Capital upto which Company can issue its capital.

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    Issued Capital– As per section 2(50) of the Companies Act,2013″issued capital” means such capital as the company issues from time to time for subscription;
    In simple words issued capital is that part of capital which have been issued for subscription.

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    Subscribed Capital- Section 2(86) of the Companies Act,2013 defines Subscribed Capital as such part of capital which is for the time being subscribed by the members of the Company. Means it is that part of issued capital which has been subscribed.

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    Paid up Capital– Section 2(64) of the Companies Act, 2013 provides “paid-up share capital” or “share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called;

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    What is reserve capital?

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    Reserve capital is that part of capital of the company that has not been Issued and called up and will only be called up in the times of need or at the winding up of the company.

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