what is meant by a shares? Discuss clearly the various kinds of shares? Related: Pro - rata Allotment of Shares, Advanced Corporate Accounting

Question

what is meant by a shares? Discuss clearly the various kinds of shares? Related:  Pro - rata Allotment of Shares, Advanced Corporate Accounting

Answer

Meaning of Share: “A part or portion of a larger amount which is divided among a number of people, or to which a number of people contribute.” The act defines a share as a ‘Share’ in the share capital of the company and includes stock. A share is an expression of propriety relationship between a shareholder and the company. However, a share in the company is legal entity distinct from the assets is represents. Its appropriate number distinguishes each share in a company. Share are classified as movable property, transferable in the manner specified by the Articles.

Types of Shares: The amount of authorised capital, together with the number of shares in which it is divided, is stated in the Memorandum of Association but the classes of shares in which the company’s capital is to be divided, along with their respective rights and obligations, are prescribed by the Articles of Association of the company. As per The Companies Act, a company can issue two types of shares; preference shares, and equity shares (also called ordinary shares).

1 Preference Shares: According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions: (i). That it carries a preferential right to dividend to be paid either as a fixed amount payable to preference shareholders or an amount calculated by a fixed rate of the nominal value of each share before any dividend is paid to the equity shareholders. (ii). That with respect to capital it carries or will carry, on the winding up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders. However, notwithstanding the above two conditions, a holder of the preference share may have a right to participate fully or to a limited extent in the surpluses of the company as specified in the Memorandum or Articles of the company. Thus, the preference shares can be participating and non-participating. Similarly, these shares can be cumulative or non-cumulative, and redeemable or irredeemable.

2 Equity Shares: According to Section 43 of The Companies Act, 2013, an equity share is a share which is not a preference share. In other words, shares which do not enjoy any preferential right in the payment of dividend or repayment of capital, are termed as equity/ordinary shares. The equity shareholders are entitled to share the distributable profits of the company after satisfying the dividend rights of the preference shareholders. The dividend on equity shares is not fixed and it may vary from year to year depending upon the amount of profits available for distribution. The equity share capital may be (i) with voting rights; or (ii) with differential rights as to voting, dividend or otherwise in accordance with such rules and subject to such conditions as may be prescribed.

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