two type of shares
Preference Shares:-Those shareholder which have preferential right in
get assured preferential dividend at fixed rate during the life of company.
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.
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 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.
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.
Preference shares :--These shareholders have following rights
to get fixed percentage of dividend.
to participate on stipulated profit after equity shareholders have been paid at
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.
Non participating preference
shareholders only get fixed percentage of dividend every
They don’t have right to participate in profit and surplus in case of
winding-up of company.
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.
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.
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.
Non-Convertible preference Shares :These shareholders do not have
right to convert their shares into equity shares.
2 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.
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
§ 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.
-- matters related to issue and transfer
of securities will be administered by the SEBI and not by the Company Law
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