Shares and Type of Shares

Definition of "Share"

Sub-section 84 of Section 2 of the Companies Act, 2013 defines 'Share' as below:
"Share" means a share in the share capital of a company and includes stock.

Shares is one type of securities. Securities is defined in Sub-section 80 of Section 2 of the said Act, which refers to the definition of the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Nature of Shares

In accordance with the Section 44 of the said Act, the shares of any member in a company shall be movable property. It is transferable in the manner provided by the articles of the company.

Numbering of Shares

Section 45 mandates it on all the companies having a share capital to ensure that the shares of the Company shall be distinguished by distinctive number.

The above requirement does not apply to cases where a share is held by a person whose name is entered as holder of beneficial interest in the records of a depository i.e. shareholders who are holding shares in demat form.

Types/Kinds of Shares

As per section 43 of the said Act, the share capital of a company limited by shares shall be of two kinds only, namely : -

(a) equity share capital -
(b) preference share capital

Meaning of Equity Shares

Equity share capital means all share capital which is not preference share capital.

Types of Equity Shares

There can be two kinds of equity shares.

  1. Equity shares with voting rights;
  2. Equity shares with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed by the Central Govt.
Meaning of Preference Share

"Preference share capital" means that part of the issued share capital of the company which carries or would carry a preferential right with respect to -

  • Dividend : payment of dividend, either a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and
  • Repayment : In case of winding up of the company or repayment of capital, repayment 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.
Deemed Preference share capital

When the share capital is entitled to either or both of the following rights, it will be deemed to be Preference share capital.

  • Dividend : The capital is in respect of dividends, in addition to the preferential rights to the amounts specified as above, it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid;
  • Repayment of capital : In respect of capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified above, it has 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.
Types of Preference Shares

The following are the various kinds of preference shares, which can be issued by a company.

  1. Cumulative & Non cumulative shares
  2. Redeemable & Non-redeemable
  3. Convertible & Non-convertible shares
  4. Participating and non-participating