Shares

Prepared By- Vinay Golchha

04/11/2023

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Shares

A SHARE is the interest of the share holder in a

company.

A Share is evidenced by a share certificate (sec.84). A

share certificate is issued by a company under its

common seal.

Stock is the aggregate of fully paid-up

shares ,consolidated & divided for the purpose of

convenient holding into different parts. It may be

transferable or split up into fractions of any amount,

without regards to the original face value.

SHARE CERTIFICATE is a document under the seal of

the company, Signed by at least 2 directors &

secretary ,Specifying the shares, Amount paid-up & name

of the share holder.

SHARE WARRANT is a document issued by a public

company stating that its bearer is entitled to the shares

specified therein.

Share Vs Stock

Has a nominal value. May not be fully paid. Can only be transferred in

round numbers. All are of equal

denomination. Always bear distinctive

numbers. Can be directly issued to the

public.

Has no nominal value. Always fully paid up. Is transferable in small

fractions May be of Unequal amounts The fractions or parts do not

bear distinctive numbers. Cannot be issued directly.

SHARES STOCK

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Types Of Shares

Preference Shares is a stock which may have any combination of

features not possessed by common stock including properties of both

an equity and a debt instrument, and is generally considered a hybrid

instrument.Equity Shares are those shares which are ordinary in the course of

company's business. They are also called as ordinary shares.

*Sweat Equity Shares are equity shares issued by a company to its

employees or directors at a discount, or as a consideration for

providing know-how or a similar value to the company.

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Forfeiture Of Shares

The articles generally give powers to Board

of Directors to forfeit shares as under:

I. If a member fails to pay any call or installment of a call

II. Any other circumstance which the articles may provide.

The articles may also provide that the failure by a

member to fulfill any engagement with any other

member would forfeit his share.

Power of forfeiture is not inherent in a company and

therefore this power exists only

when it is given by the articles.

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Issue of Shares at a Premium [Section 78]

Companies may issue shares at premium irrespective of the

fact whether the shares are listed or not.

No restriction in Companies Act on issue at premium, the

only restriction is on the utilization of premium amount.

Premium cannot be treated as profit as such the amount not

available for distribution as dividend.

Premium amount must be kept in separate account called

Securities Premium Account.

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Issue of Shares at a Premium

If premium is received in kind, an amount equal to premium amount

must be transferred to Securities Premium Account.

Premium to be used only for the following purposes as mentioned in

Section 78(2):

For issuing fully paid bonus shares;

For writing off preliminary expenses;

For writing off commission, discount expenses on issue of debentures; and

For providing for premium payable on redemption of Redeemable

Preference Shares or debentures.

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Further Issue of Shares [Section 81]

Called Right Shares.

May be issued at any time after two years from incorporation or

one year from first allotment, whichever is earlier.

Must be offered to the existing shareholders in proportion to their

holding.

For listed company, information on quantum and proportion shall

be supplied to the concerned stock exchange.

Company must give notice of offer and the number of shares

offered to existing shareholders.

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Further Issue of Shares

Give shareholders 15 days to decide.

The notice must state the shareholder's right to renounce the

offer in whole or in part in favour of some other person.

The board may dispose of the shares in a manner beneficial to

the company.

Condition of issue of shares to persons other than existing

shareholders.[Section 81 (1A)]:

I. Pass a special resolution in general meeting, and

II. In case of ordinary resolution Central Govt.'s approval must be obtained.

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Dividends

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits . When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders.

RulesI. To be paid only out of ProfitII. Resolution at the AGMIII. Payment of Dividend in Proportion to paid-up capitalIV. Establishment of Investor Education & Protection FundV. To be paid to Registered ShareholderVI. Unpaid Dividend to be transferred to Unpaid Dividend AccountsVII. Penalty for Defaulting Director

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Bonus Shares

When company accumulates large distributable profits it

convert it into capital.

Divide the capital among the existing shareholders in

proportion to their entitlement.

Members do not have to pay for such shares.

Bonus issue is a machinery for capitalizing distributable

profits.

Must be sanctioned in the AGM on the recommendation of

the board.

Bonus shares is not income and hence not taxable.

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Allotment of Shares(Rules To Observed)

A prospectus shall be filed with Registrar.

No allotment of shares shall be made to public unless

the minimum subscription amount stated in the

prospectus is raised and received by the company.

Application for shares should be made in prescribed

form.

No allotment shall be made until the beginning of the

5th day after a date on which prospectus is issued.

Cont.

Companies intending to offer must make an application

to one or more stock exchanges for permission.

The whole of the application money should have been

paid and received by company in cash.

All moneys received shall be deposited in a Scheduled

Bank until the certificate to commence business is

obtained.

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Transfer Of Shares

A share is a movable property, transferable in the manner provided

by the articles.

A share holder has a statutory right, in the absence of restrictions

in the articles, to transfer shares to any person without consent of

anybody.

A private company with share capital may restrict the right to

transfer its shares by its articles. Transfer of shares is less strict in

a public company.

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Transmission Of Shares

Where shares pass by operation of law from one person to

another.

For example, by holder’s insolvency, or lunacy or by death

and inheritance.

The person to whom shares are transmitted shall make an

application to the company for transmission of shares in his

name.

In case if the company refuses to register transmission,

right of appeal arises in the same manner as in case of

transfer.

No instrument of transfer is required.