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Share Capital Types: What are the Types of Share Capital in India

Narendra Kumar

| Updated: Mar 21, 2018 | Category: Annual Compliance

Share-Capital-Types-What-are-the-Types-of-Share-Capital-in-India

To run the business, every Company requires money in the form of share capital by issuing its shares. The company uses the money to meet its requirement by the way of acquiring business premises and stock-in-trade etc. The word capital means ‘Share Capital’ of the company in terms of rupees divided into a specified number of shares of a fixed amount each.

Nature of Share Capital

  • A share is defined as a share ‘a share in the share capital of the company’.
  • Share also includes stock except where a distinction between stock and shares is expressed or implied.
  • Share Capital is a right to a specified amount of the share capital, carrying with its certain rights and liabilities while the company is a going concern and, in it’s winding up.
  • As per the Sale of Goods Act, 1930 – Goods means any kind of movable property other than actionable claim and money and includes stock and shares.
  • Share Capital is distinguished by its distinctive number. However, this provision shall not apply to a share held by a person whose name is entered as the holder of a beneficial interest in such shares in the record of a depository.
  • Additionally, a share of any member in a company is a movable property transferable in the manner provided by the articles of association of the Company.

Types of Share Capital

  1. Authorized Share Capital – Authorised share capital is the capital as is authorized by the Memorandum of Association of the Company to be the maximum amount of share capital of the company. Authorized share capital is also termed as Nominal share capital and registered share capital.
  2. Issued Share Capital – Issued share capital is that part of authorized share capital which represents such capital as the company issues from time to time for the subscription. The company issues Issued share capital for the time being for public subscription and allotment which is computed at the face or nominal value.

Issued Share capital=Subscribed Share Capital+ Unsubscribed share capital

  1. Subscribed share Capital – Subscribed share capital is the capital which is for a time being subscribed by the members of the company .i.e. the issued share capital may not be fully subscribed by the public. Subscribed Capital is that part of issued Capital which has been accepted by the public. The entire share capital may or may not be subscribed.
  2. Called-up share Capital – Called-up share capital is part of the subscribed share capital which has been called for payment or demanded on the shares by the company. i.e. The Company may not receive the entire amount of capital at once. It may call up only part of the subscribed capital as and when required.
  3. Paidup share capital-Paid up share capital is the amount of money credited as paid up in respect of shares issued. Paid -up Capital is the part of the called-up capital which is paid by the shareholders.

Kinds of Share Capital

As per section 43 of the Companies Act, 2013 permits a company limited by shares to issue 2 classes of share i.e. the share capital of the Company is of two kinds-

  1. Equity Share Capital

With reference to any company limited by shares, Equity share capital means share capital which is not a preference share capital. Equity share capital is classified as share capital-

  • With voting rights-Every company limited by shares and holding equity share capital shall have a right to vote on every resolution placed before the company. Additionally, In case of his voting right on a poll the voting right shall be in proportion to his share in the paid-up share capital of the company.
  • With differential rights as to dividend/voting in accordance with such rules as may be prescribed-
  • Equity share with differential voting rights enables companies to issue a variety of equity shares with differential rights.
Note- Section 43 shall not apply where MOA and AOA of the Private Company so provide

Conditions for issuing shares with differential voting rights

  1. The articles of association authorize the issue of shares with differential voting rights.
  2. The issue of shares is authorized by an ordinary resolution passed at the annual general meeting of the shareholder.

In case of shares are listed on a recognized stock exchange, the issue shall be approved by the shareholders through Postal Ballot.

  1. The voting power in respect of shares with differential rights of the company shall not exceed 74 percent. of the total voting power

Voting power includes voting power in respect of equity shares with differential rights issued at any point of time.

  1. Where any default has been made by the company in filing financial statements and annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue shares with differential voting right.
  2. No subsisting default in the payment of-
  • A declared dividend to its shareholders or
  • Repayment of its matured deposits or
  • Redemption of preference shares or debentures that have become due for redemption or
  • Payment of interest on such deposits or debentures or payment of dividend,
  1. No default in the payment of the dividend on preference shares or repayment of any term loan from the public financial institution.
  2. The company has not been penalized by Court or Tribunal during the last three years of any offense under-
  • The Reserve Bank of India Act1934,
  • The Securities and Exchange Board of India Act, 1992,
  • The Securities Contracts Regulation Act, 1956,
  • FEMA Act-The Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.

II-Preference share capital-Preference share capital regarding any company limited by shares, means a part of the Issued share capital which carries a preferential right concerning-Payment of dividend,

-Repayment of Capital or Repayment in case of winding up of a company.

Key features of the Preference Share Capital-

  • Entitled to a fixed rate of dividend.
  • The Dividend is paid in preference to the equity shares.
  • Preference is given in case of winding up of the company i.e. the shareholder of the preference shares gets the preference over the equity shareholder about the payment of the Capital.
  • No Bonus/right shares are issued to preference shareholders.
Note- Where the dividend in respect of a class of preference shares has not been paid for 2 years or more, in that case, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.
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Narendra Kumar

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