B Com Exam > B Com Notes > Company Law > Kinds of Shares - Share Capital, Company Law
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Meaning and Nature of a Share
Section 2(84) of the Act defines a share as “a share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied.
Nature of a Share
- A share is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities while the company is a going concern and in its winding up. (Halsbury's Laws of England)
- A share is the interest of a shareholder in the company measured by a sum of money, for the purposes of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se. [Borland’s Trustee v. Steel Bros., (1901)].
- A share is a right to participate in the profits made by a company, while it is a going concern and declares a dividend and in the assets of company when it is wound up [Bacha Guzdar v. CIT 57 Bom. L.R. 617 (SC)].
- A share is not a sum of money but a bundle of rights and liabilities; it is an interest measured by a sum of money. These rights and liabilities are regulated by the articles of a company.
- Section 44 of the Companies Act provides that a share or other interest of any member in a company is a movable property transferable in the manner provided by the articles of the company.
- In India, a share is regarded as goods. According to the Sale of Goods Act, 1930, “Goods” means any kind of movable property other than actionable claim and money, and includes stock and shares.
- According to Section 45 of the Companies Act, 2013 every share in a company having a share capital shall be distinguished by its distinctive number but this provision shall not apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository.
Kinds of Shares
Section 43 of the Companies Act, 2013 permits a company limited by shares to issue two classes of shares, namely:
(a) 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.
(b) Preference Share Capital.
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FAQs on Kinds of Shares - Share Capital, Company Law - Company Law - B Com
| 1. What is share capital in company law? |  |
Ans. Share capital in company law refers to the total value of the shares issued by a company. It represents the funds raised by a company through the issuance of shares to shareholders. The share capital is an important component of a company's financial structure and determines the ownership and control of the company.
| 2. What are the different kinds of shares in company law? | |
Ans. There are several types of shares in company law, including:
- Ordinary shares: These are the most common type of shares, representing the basic ownership in a company. Ordinary shareholders have voting rights and are entitled to dividends.
- Preference shares: Preference shareholders have a preferential right to receive a fixed dividend before ordinary shareholders. They usually do not have voting rights but may have other special rights such as priority in the distribution of assets in case of liquidation.
- Cumulative preference shares: Cumulative preference shareholders have the right to receive any unpaid dividends in future years before dividends are paid to ordinary shareholders.
- Redeemable shares: Redeemable shares are shares that can be bought back by the company at a future date or upon certain conditions.
- Non-voting shares: Non-voting shares do not carry any voting rights but may still be entitled to dividends.
| 3. How can a company increase its share capital? | |
Ans. A company can increase its share capital through various methods, including:
- Issuing new shares: The company can issue new shares to existing shareholders or new investors. This can be done through a rights issue, bonus issue, or private placement.
- Convertible securities: The company can issue convertible securities, such as convertible bonds or preference shares, which can be converted into ordinary shares at a later date.
- Share split: The company can split existing shares into a greater number of shares without changing the overall share capital.
- Share consolidation: The company can consolidate existing shares into a smaller number of shares without changing the overall share capital.
| 4. What is the significance of share capital in company law? | |
Ans. Share capital plays a significant role in company law as it represents the financial resources of a company and determines the ownership and control structure. It helps in raising funds for the company's operations, expansion, and investment activities. The share capital also serves as a basis for calculating various financial ratios, such as earnings per share and return on equity, which are important for investors and stakeholders in evaluating the company's performance and financial health.
| 5. Can a company reduce its share capital? | |
Ans. Yes, a company can reduce its share capital under certain circumstances and subject to legal procedures. This typically involves canceling or reducing the nominal value of the shares, buying back shares from shareholders, or extinguishing unpaid capital. However, share capital reduction requires court approval and compliance with company law regulations to protect the interests of creditors and shareholders. It is usually done to eliminate accumulated losses, simplify the capital structure, or return excess capital to shareholders.
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