• The Companies Act, 1956 (Introduction)
• Share Capital
• Different Types of Shares
• Nomination of Share
• Share Certificate
• Share Warrant
• Transfer and Transmission of Shares
No: of Slides : 40
The Companies Act, 1956
• The Companies Act 1956 is an Act of the Parliament of India,
enacted in 1956, which enabled companies to be formed by
registration, and set out the responsibilities of companies,
their directors and secretaries.
• The Companies Act 1956 is administered by the Government
of India through the Ministry of Corporate Affairs and the
Offices of Registrar of Companies, Official Liquidators, Public
Trustee, Company Law Board, Director of Inspection, etc. The
Registrar of Companies (ROC) handles incorporation of new
companies and the administration of running companies.
• Since its commencement, it has been amended many times, in
which amendment of 1988, 1990, 1996, 2000 and 2011 are
Main Features Of Companies Act ,1956
• Full and Fair disclosure of various matters in
• Detailed information of the financial affairs of a
company to be disclosed in its accounts
• Provision for intervention and investigation by the
government in to the affairs of a company
• Restriction on the Powers of managing agents and
other managerial personnel
• Enforcement of proper performance of their duties by
• Protection of minority share holders
• A company in broad sense may mean an
association of individuals formed for some
• It is a voluntary association of persons formed
to carry on some business for profit or to
promote art, science, education or some
• It is regarded by the law as a person, a human
being. But it has no physical existance.
• Share Capital or Capital Stock refers to the
portion of a company's equity that has been
obtained by trading stock to a shareholder
for cash or an equivalent item of capital value.
For example, a company can issue shares
in exchange for computer servers, instead of
purchasing the servers with cash.
• Share Capital denotes the amount of Capital
raised by the issue of shares, by a company. It
is collected through the issue of shares and
remains with the company till its liquidation.
• The Capital of the company is divided into
different units of a fixed amount which is known
• A share is a right to a specified amount of the
share capital of a company, carrying with it
certain rights and liabilities.
• Section 2(46) of the Companies Act defines
share means “ share in the share capital of a
company, and includes stock except where a
distinction between stock and shares is
expressed or implied”
Features of Share
• A share is not a negotiable instrument, but it is a
• It is also considered to be goods under the Sale
of Goods Act, 1930.
• The company has to issue the Share Certificate.
• It is subject to Stamp Duty.
• The ‘Call’ on Shares is a demand made for
payment of price of the shares allotted to the
members by the Board of Directors in
accordance with the Articles of Association.
Types Of Shares
• Before the commencement of Companies Act,
companies used to issue three types of shares
• Under the Companies Act, 1956 a company can issue
two types of shares
Types Of Shares
• Preference Shares
Cumulative Preference Shares
Non Cumulative Preference Shares
Participating Preference Shares
Non Participating Preference Shares
Convertable Preference Shares
Non Convertable Preference Shares
Irredeemable Preference Shares
• Equity Shares
• Preference share are those which have a preferential right for the
payment of dividend during the lifetime of the company. They have
also a preferential right for the return of capital when the company is
• Preference share holders enjoy more security in regard to income
and capital than other share holders.
• The dividend on Preference share is fixed by the Articles of the
• The dividend on Preference share holders is Pre-determined and
therefore they will not get any benefit in times of large profits.
• They do not enjoy normal voting rights. They can vote only on the
matters affecting their own interest.
• The dividend specified on preference share is not at all guaranteed.
• No dividend will be paid if there is no profit. *
• Preference share holders have priority only over the other share
holders, but not over the Creditors.
Cumulative Preference Shares:
• The dividend payable on these shares goes on
accumulating till it is fully paid.
• If dividend is not paid in any year due to non availability
of profits, the right of the share holder for dividend does
not lapse. It will carried over to the subsequent years.
• The accumulated dividend is paid to the Cumulative
Preference Share holders before any dividend paid to
other types of share holders.
• If the company goes into liquidation no arrears of
dividends are payable unless the Article contains express
provisions to this effect.
Non-Cumulative Preference Shares:
• These are the shares on which the dividend
does not go on accumulating.
• If there are no profit or there are inadequate
profits in any year, these shares get no dividend
or a partial dividend.
• These shares will be treated on the same
footing as other preference shareholders in the
case of capital.
Participating & Non-Participating
• Participating Preference Shares:
The preference shares which are entitled to a share in the surplus
profit of the company in addition to the fixed rate of preference
dividend are known as participating preference shares.
These shares are not only entitled to a fixed rate of dividend, but
also to a share in the surplus profits, which remain after the claims
of the equity share holders have been met.
Thus participating preference shareholders obtain return on their
capital in two forms
• (i) fixed dividend
• (ii) share in excess of profits.
• Non-Participating Preference Shares:
Those preference shares which do not carry the right of share in
excess profits are known as non-participating preference shares.
The Preference Shares are presumed to be Non-Participating
unless expressly provided in the memorandum or the articles or the
terms of issue.
Convertable & Non-Convertable
• Convertable Preference Shares:
The holder of these shares have a right to convert
them into equity share with in a certain period.
This exchange may occur at any time in maturity
period the investor chooses, regardless of the
market price of the common stock.
It is a one-way deal; one cannot convert the
common stock back to preferred stock.
• Non- Convertable Preference Shares:
The preference share without a right of conversion
into equity shares are called Non-Convertible
• Normally capital that is raised by the issue of shares can
be returned by the company only on its winding up.
• But a company limited by shares, if authorized by its
article can issue Preference Shares which are to be
• The capital received on such shares can be returned
after the expiry of a stipulated period or when ever the
company wants as per the terms of issue and after
• The redeemable shares are redeemed within the life time
of the company or before the company closes down or to
say that these shares have a maturity period
• Note : According to Section 100 of the Companies Act, 1956 : If a
company collects the money through redeemable preference shares,
this money must be returned on its maturity whether company is
liquidated or not.
Irredeemable Preference Shares:
• Those preference shares, which can not be redeemed
during the life time of the company, are known as
Irredeemable preference shares.
• The amount of such shares is paid at the time of
liquidation of the company.
• No companies limited by shares shall issue any
Preference Share which is irredeemable or redeemable
after the expiry of a period of ten years from the date of
its issue.(Amendment 1988, Sec 80A)
Conditions for issuing
• Section 80 of the Companies Act, 1956 deals with the redemption
of preference shares.
• There should be provision in the Article authorizing a company to
issue such shares.
• The Premium if any, payable on redemption must be provided for
out of the profits of the company or out of the company’s share
premium account before the shares are redeemed.
• Where redemption is made out of profits, a sum equivalent to the
nominal value of the shares redeemed must be transferred to the
‘Capital Redemption Reserve Account’. This amount shall be
treated as capital of the company.
• The capital redemption account may be applied by the company in
paying up fully paid bonus shares.
• The balance sheet of the company which has issued such shares
shall state the terms of redemption or conversion and the date of
redemption or conversion.
• The redemption of shares shall not to be taken to be reduction in
the capital of the company and the company shall have the
powers to issue shares up to the nominal amount of the shares
Advantages & Disadvantages –
• These yield fixed rate of returns
• Preference is given compared to equity share
holders while distributing the dividends and once the
company is dissolved.
• It’s a hybrid instrument having some of the
characteristics of debentures and equity shares.
• They do not provide the investor with any of the
• If the company gets huge profits then they won’t get
any extra bonus
• Equity shares, with reference to any company limited by shares,
are those which are not Preference Shares [Sec.85(2)]
• The holder of these shares are entitled to dividend after the fixed
dividend of Preference Shares has been paid.
• If no profit is left after paying dividend of Preference shares, the
Equity Shares get no dividend.
• Similarly at the time of winding up of the company Equity
shareholder will get back their capital only after the capital has
been returned to Preference Share holders.
• The rate of dividend is not fixed on the Equity Shares.
• These share holders generally stand to receive relatively high rate
of returns in years of prosperity.
• This rate of dividend is determined by directors and in case of
larger profits, it may even be more than the rate attached to
Advantages – Equity Shares:
• Equity shares give greater returns if the company makes profits.
• There is a tremendous amount of capital appreciation if the
shares are of a good performing company.
• The equity shares are easily transferable.
• The equity shares are traded at the stock exchanges so they
can be bought and sold easily. These can be easily liquidated.
• The equity share holders have got the right to vote in the annual
• Only the equity share holders have the right to choose the
board of directors.
• Equity share holders have the right to oppose any of the
decisions taken by the board of directors.
Disadvantages – Equity Shares:
• No doubt equity shares have attractive and better returns
but in case the firm has not performed well or is going for
diversification or is investing in some venture then the
profits carried forward will be more and the dividends
paid will be less.
• In worst cases if the company goes bankrupt then it is
• No doubt equity shares have both advantages and
disadvantages but the fact is that equity shares are the
most sought financial instruments for both investment or
(Manager’s Share or Founder’s
• These are shares often issued to the Promoters or
Founders of the company in consideration of the service
rendered by them in forming the company
• The holders of deferred shared carries a right to dividend
after the rate of dividend was paid to the Preference and
Equity Share holders.
• The issue of these shares is prohibited on the Public
Companies after passing the Companies Act of 1956.
• How ever an independent Private company is still entitled
to issue Deferred Shares.
• Bonus shares implies the payment of dividend
in the form of shares.
• The advantage to the company is that its issued
capital increases and while its asset remain
• The share holders get a few more fully paid up
shares instead of getting the divident in cash.
• Issue of Bonus Share has been for this reason
known as “Capitalization Of undistributed
Its time to relax …..
Nomination Of Shares:
• Sec 109 A of Companies Amendment Act 1999,
confers a right on the shareholders of a
company to nominate at any time in the
prescribed manner a person to whom their
shares or debentures in the company shall vest
in the event of their death.
• The nominee can be either an individual or a
• Minor can be a nominee.
• If the shares are held by more than one person
jointly the joint holders may together nominate a
• A share certificate is a registered 'evidence of title' to the
shares, issued by the company under its common seal, duly
stamped and signed by one or more directors and
countersigned by the secretary of the company, as per Articles.
• In case shares are held by more than one person jointly with
others, company shall issue only one share certificate to the
• Contents of the Certificate :
Name of the company and the amount and division of
Serial number of the certificate.
Name of the shareholder.
Number and class of shares held by him and their
Amount paid on each share.
Provision for endorsement of transfer.
Signature of two Directors and Secretary.
Common seal of the company
Sample Share Certificate..
Sample Share Certificate..
• A share warrant is a document issued by the
company under its seal specifying that its
bearer is entitled to the shares specified
• Share warrant is just like a negotiable
• A share warrant can be issued only when the
shares are fully paid up.
Share Warrant - Sample
Difference b/n Share Warrant and
• A share warrant can be issued only when the
shares are fully paid up whereas a share certificate
can be issued at any stage without the shares
being fully paid up.
• A share warrant is a negotiable instrument but a
share certificate is not.
• A share certificate is a document showing prima
facie title to the shares represented thereby but a
share warrant is the share security itself capable of
• A share certificate can be issued both by a public
and a private company but a share warrant is
issued only by a public company.
Transfer and Transmission of
• AOA provides for the procedure of transfer of shares. It is
a voluntary action of the shareholder.
• It can be made even by a blank transfer –In such cases
the transferor only signs the transfer form without making
any other entries.
• In case it is a forged transfer, the transferor’s signature is
forged on the share transfer instrument.
• Board can refuse the transfer of share:
Defect in instrument of transfer.
Unpaid or partly paid shares.
Shares transferred may be refused.
• Transmission of shares is by operation of law, e.g. by
death, insolvency of the shareholder etc.
• Calls on Shares
• Par value of a share
• Issue of share at a premium (Sec.78)
• Issue of share at a discount (Sec.79)
• Underwriting of shares
• The Companies Act, 1956 (Introduction)
• Main Features Of Companies Act ,1956
• Company (Introduction)
• Share Capital (Introduction)
• Features of Share
• Features of Share
• Different Types Of Shares
• Types Of Shares
• Preference Shares:
• Cumulative Preference Shares
• Participating & Non-Participating Preference Shares