CS Executive New Syllabus Company Law Notes

CS Executive New Syllabus Company Law Notes – Chapter 2

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CS Executive New Syllabus Company Law Notes

SHARE CAPITAL – CHAPTER 2 - Part A

PART A: Meaning and Types of Share Capital

Meaning and nature of a share

CS Executive New Syllabus Company Law Notes.

Meaning and nature of a Share
According to Section 2(84), share means a share in the share capital of a company, and includes stock.

A share is a right/interest of a person in a company which can be measured in terms of money.

Section 44 [Nature of Shares or Debentures]
The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

Section 45 [Numbering of Shares]
Every physical share in a company having a share capital shall be distinguished by its distinctive number.

This section shall apply to a share in Dematerialised Form (Electronic Form).

Classification of share capital

Nominal, Authorised or Registered Capital [Section 2(8)]

  • Such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company;
  • Company can’t issue shares beyond its Authorised Capital
  • It includes Equity Share Capital and Preference Share Capital

Issued Capital [Section 2(50)]

  • Such capital as the company issues from time to time for subscription;
  • It is the part of Authorised Capital issued by company for the purpose of subscription.

Subscribed Capital [Section 2(86)]

  • Such part of the capital which is for the time being subscribed by the members of a company;
  • It is the part of Issued Capital subscribed (purchased) by members (shareholders) of the company.

Called-up Capital [Section 2(15)]

  • Such part of the capital, which has been called for payment;
  • It is that part of Subscribed Capital which is called up by company from the members for payment.

Paid-up Share Capital [Section 2(64)]

  • 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.
  • It is that part of Called-up Capital which is actually paid up by the subscribers of the shares.
Kinds of share capital

According to Section 43, the share capital of a company limited by shares shall be of two kinds, namely:—

  •  equity share capital—
  • with voting rights; or
  • with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and
  • preference share capital   

Note: In case of private company or specified IFSC Public Company, Section 43 shall not apply where MOA & AOA of the company so provides
It means a private company or specified IFSC Public Company may have share capital with characteristics different from equity shares or preference shares.

CS Executive New Syllabus Company Law Notes

Equity Share Capital

Equity share capital, with reference to any company limited by shares, means all share capital which is not preference share capital. (Explanation to Section 43)

Voting Rights of Equity Share Holder [Section 47(1)]
Subject to the provisions of this Act,—

  • every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and
  • his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.
Preference Share Capital (Explanation to Section 43)

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—

  • 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
  • repayment of capital, in the case of a winding up or otherwise, of the amount of the share capital paid-up or deemed to have been paid-up;

Participating Preference Shares and Non-Participating Preference Shares
Preference shares are called participating if

  • in respect of dividends, in addition to the preferential rights to the dividend they are entitled to, they have a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid; and/or
  • in respect of capital, in addition to the preferential right to the repayment of paid-up capital , on a winding up, they have a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.
    Preference shares are always considered as non-participating until and unless stated otherwise in the terms of issue.

Cumulative Preference Shares and Non-Cumulative Preference Shares
Preference shares are called cumulative if dividend on those shares keeps on accumulating year after year until the dividend is fully paid.

Non-cumulative preference shares are those shares that provide the shareholder fixed dividend amount each year from the company’s net profit but in case the company fails to pay the dividend on such preference share to the shareholder in any year then such dividend cannot be claimed by the shareholder in future.

Preference shares are always considered as cumulative until and unless stated otherwise in the terms of issue.

Voting rights of Preference Share holder
According to Section 47(2), every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote

  • only on resolutions placed before the company which directly affect the rights attached to his preference shares and,
  • on any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital.

But where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

Publication of authorised, subscribed and paid-up capital [Section 60]

Where any notice, advertisement or other official publication, or any business letter, billhead or letter paper of a company contains a statement of the amount of the authorised capital of the company, such notice, advertisement or other official publication, or such letter, billhead or letter paper shall also contain a statement, in an equally prominent position and in equally conspicuous characters, of the amount of the capital which has been subscribed and the amount paid-up.

If any default is made in complying with the requirements of sub-section (1),

    • the company shall be liable to pay a penalty of Rs. 10,000 and
    • every officer of the company who is in default shall be liable to pay a penalty of Rs. 5000, for each default.
Chapters and Sections of Companies Act, 2013 involved in this Part
Chapter of Companies Act, 2013 Chapter IV (Share Capital and Debentures) Sections covered – 43 to 72
Section 2(8) Definition of  “Authorised Capital” or “Nominal Capital”
Section 2(15) Definition of “Called up Capital”
Section 2(50) Definition of “Issued Capital”
Section 2(64) Definition of “Paid up Capital”
Section 2(84) Definition of “Share”
Section 2(86) Definition of “Subscribed Capital”
Section 43 Kinds of Share Capital
Section 44 Nature of Shares or Debentures
Section 45 Numbering of Shares
Section 46 Certificates of Shares
Section 47 Voting Rights
Section 60  Publication of authorised, subscribed and paid-up capital.
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