Question

What do you mean by the term ‘share’? Discuss the type of shares, with can be issued under the Companies Act, 2013 as amended to date.

Answer 1

The capital of a company is divided into a number of equal parts. Each part is called a share. A company may divide its capital into shares of Rs.10, Rs.50, Rs.100 each or any suitable amount, but it is always preferable to have shares of small denomination in order to bring them within the reach of small investors.

According to Lord Lindley, "The portion of capital to which each member is entitled to his share". In this way, share is proportionate part of the share capital and forms ownership in a company.

According to Companies Act, 2013 there are two types of shares-

(i) Preference Share : Preference Share is one which carries the following two rights-

(a) They have a right to receive dividend at a fixed rate before any dividend is paid on the equity shares

(b) On the winding up of the company, they have right to return of capital before the capital returned on equity shares.

However, not withstanding the above two conditions, a holder of the preference share may have a right to share fully or to a limited extent in the surplus of the company as specified in the Memorandum or Articles of the company.

(ii) Equity Share : Under Companies Act 2013, 'an equity share is share which is not preference share'. Thus, this share does not carry any preferential right or in other words, equity share is one which is entitled to dividend and repayment of capital after the claim of preference shares is satisfied. Usually the equity shareholders control the affairs of the company and hence has right to all the profits after preference dividend has been paid.