Lecture_5_-_Shares_Debentures_f32442294ade2a6544f2c806852f6cb3.ppt

19 September 2022 All Rights Reserved - Vick
Krishnan
1
Company Law
SHARES & DEBENTURES

Krishnan
2
Definition
• A share is the interest of a shareholder in
a company.
• “An interest having a money value and
made up of diverse rights specified under
the AoA”

Krishnan
3
Types of Shares
Preference Shares
Equity Shares

Krishnan
4
Preference shares
• With reference to any company limited by shares
:
 They have a preferential right to be paid
dividend during the lifetime of the company.
 They have a preferential right to the return of
capital when the company goes into liquidation.

Krishnan
5
Equity Shares
• With reference to any company limited by shares
are those which are not preference shares.
• ‘Sweat’ equity shares
 These are Equity shares issued at a discount
or for consideration other than cash for providing
know-how or making available rights in the
nature of intellectual property rights or value
additions.

Krishnan
6
Kinds of Preference Shares
• 1. Cumulative preference shares
These are the shares on which dividends
goes on accumulating till it is fully paid off.
The company is bound to pay dividend
only if it has sufficient profits available for
distribution.

Krishnan
7
Cumulative preference shares
• If the company goes into liquidation,
arrears of dividends are payable –
if the Articles contain express provision to
this effect.
The Articles, upon their true construction,
give the preference shareholders a clear
right to the dividends.

Krishnan
8
• 2. Non-cumulative preference shares
Shares on which dividend does not goes on accumulating.
If there are no profits/ inadequate profits in any year, these
shares get no dividend or get a partial dividend.
They cannot claim arrears of dividends of any year/years
out of the profits of the subsequent years.

Krishnan
9
• 3. Participating preference shares
These shares are entitled to a fixed rate of
dividend and a share in the surplus profits
which remain after the claims of the equity
shareholders have been met.
 The surplus profits are distributed in
certain agreed ratio.

Krishnan
10
• 4. Non-participating
•  Shares entitled only to a fixed rate of
dividend.
•  Holders do not share in the surplus
profits which go to equity shareholders.

Krishnan
11
• 5. Convertible
Shares which entitle their holders to convert
them into equity shares within a certain period.
6. Non- convertible
 Shares which do not confer on their holders a
right of conversion into equity shares.

Krishnan
12
• 7.Redeemable preference shares
A company limited by shares may, if so
authorized by its Articles, issue preference
shares which are to be redeemed.
Conditions:-
Shares to be redeemed must be fully paid-up.
Shares can be redeemed only out of –
a) profits of the company which would
otherwise be available for dividends
b) the proceeds of a fresh issue of shares
made for the purpose of redemption.

Krishnan
13
• 7.Redeemable preference shares
Any premium payable on redemption must have been
provided for out of the profits or out of the company’s
share premium a/c before the shares are redeemed.
When 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
a/c.
No company limited by shares shall, issue any
preference share which is irredeemable or is
redeemable, after the expiry of a period of 20 yrs from
the date of its issue. (Companies Amendment Act, 1996)

Krishnan
14
Application & Allotment of
Shares
• An ‘application’ for shares is an offer by a
prospective shareholder of a company to take
shares.
• ‘Allotment’ is the acceptance by the company of
that offer.
– The term ‘Allotment’ is not defined in the Act.
– Allotment is the appropriation to an applicant by a
resolution of the directors of a company of a certain
no. of shares in the company in response to an
application.

Krishnan
15
Calls on Shares
• A call is a demand on its shareholders to pay the
whole/ part of the balance remaining unpaid on each
share.
• Made in pursuance of a resolution of the Board of
Directors & terms of the Articles.
• Made any time during the lifetime of the company or
during its winding up.

Krishnan
16
Calls on Shares (Continued….)
• Legal provisions relating to calls
• Resolution of the Board
• A call must be made under a resolution of the
Board of directors passed at a meeting of the
Board.
• In making a call, care must be taken –
– That the directors making it are duly appointed and
qualified.
– The meeting of directors has been duly convened
– That the proper quorum is present
– That the resolution making the call is duly passed.

Krishnan
17
– Bona fide & for the benefit of the company
• A call should be made by the company only when it is
in bona fide need of capital.
Uniform basis
• Calls must be made on a uniform basis on all shares
falling under the same class.
• If a call is made on some shareholders but not on
others or a call of a greater amount is made on some
shareholders than on others, the call is invalid.

Krishnan
18
– In accordance with the Articles, amount, place and time of
payment.
– Calls in advance
• A company may, if so authorized by its Articles, accept from
any member the whole or part of the amount remaining
unpaid on any shares held by him in advance.
• The payment of calls in advance does not give voting rights
to the member in respect of that amount until that amount
becomes presently payable.

Krishnan
19
Share Certificate
• Every person whose name is entered as a member in the register of
members of a company has a right to receive a certificate of his
shares [Article 7 (1) of Table A, Schedule I]
• A share certificate shall be under the seal of the company, and shall
specify –
– The shares to which it relates
– The amount paid up thereon
– The name of the holder of the shares.

Krishnan
20
Share Certificate
(Continued……)
• Limitation of time for issue of share certificate
– The company shall deliver share certificates—
• Within 3 months of the allotment of shares
• Within 2 months after the application for
registration of the transfer of any such shares.

Krishnan
21
Share Certificate
(Continued…..)
• Object of share certificate
– A share certificate is the prima facie evidence of the
title of the member to the shares specified in the
certificate.
– Estoppel – A share certificate of a company creates
two kinds of estoppel against the company
• Estoppel as to title
• Estoppel as to payment

Krishnan
22
Share Certificate
(Continued……)
• Lost or defaced certificate
– A certificate may be renewed or a duplicate of
a certificate may be issued if such certificate –
 is proved to be have been lost / destroyed.
 having been defaced or mutilated or torn,
is surrendered to the company.

Krishnan
23
Share Warrant
• Issue of share warrants to bearer
– A share warrant is a document issued by a public
company stating that its bearer is entitled to the
shares specified therein.
– It is transferable by mere delivery and is a substitute
for the share certificate.
– A public company limited by shares may convert its
fully paid-up shares into share warrants.
– Registration of the transfer of shares with the
company is not necessary.

Krishnan
24
Share Warrant
• Conditions for issue of Share warrants
– The shares shall be fully paid up
– The Articles shall authorize the issue of share
warrants
– Prior approval of the Central Government
shall be obtained
– The share warrants shall be issued under the
common seal of the company.

Krishnan
25
Distinction btw Share Warrant &
Share certificate
• Share warrant
– Can be issued only by
public companies.
– Can be issued by a
public company only if
it is empowered to do
so by its AoA & has
obtained prior
approval of the Central
government.
• Share certificate
– Issued by all
companies (public or
private)
– There is a statuary
obligation on every
company issuing
shares to issue a
Share certificate.

Krishnan
26
Share certificate (Cont…..)
• Share warrant
– It can be issued only
with respect to fully
paid-up shares.
– A holder of share
warrant is not a
member of the
company unless the
Articles otherwise
provide.
– It can be transferred
by mere delivery.
• It is to be issued even
where the shares are
-partly paid-up.
– A holder of share
certificate is the
member of the
company.
– Shares are transferred
by a transfer deed.

Krishnan
27
Share certificate (Cont…..)
• Share warrant
– The holder of it cannot
present a petition for
the winding up of the
company.
– No stamp duty is
payable on transfer of
a share warrant.
– The holder of it can
present a petition for
the winding up of the
company.
– Stamp duty is payable
on transfer of the
shares specified in
share certificate.

Krishnan
28
Transfer of Shares
• The shares of member in a company are
movable property, transferable in the manner
prescribed in the Act & the Articles of the
company.

Krishnan
29
Lien on Shares
• A lien is an equitable charge.
• It gives company such rights as it would have had under
the general law if the shares had been expressly
charged.
• Loss of lien:-
– A company loses lien if –
– It registers a transfer of shares subject to the lien of
the transferee
– A member pledges his shares to a third party as
security for a loan & the company has notice thereof,
& then incurs a liability to the company.

Krishnan
30
Surrender of Shares
• When a shareholder of a company voluntarily
gives up his shares in favor of the company.
• The Companies Act does not contain any
provision relating to the surrender of shares.
• Table A gives no power to the company to
accept a surrender.

Krishnan
31
Surrender of Shares (Cont…..)
• The surrender of shares by a member to
the company is valid in the following
cases:
– In case of partly paid shares where forfeiture
is called for.
– In case of fully paid shares, where they are
exchanged for new shares.

Krishnan
32
Forfeiture of Shares
• If a shareholder, having been called upon
to pay any call on his shares, fails to pay
the call, the company has to remedies :
• It may sue him for the amount due.
• It may ‘forfeit’ his shares.

Krishnan
33
Forfeiture of Shares (Cont…..)
• Forfeiture means depriving a person of his
property as a penalty for some act or
omission.
• Conditions:
– In accordance with Articles
– Notice prior to forfeiture
– Resolution of Board
– Good Faith

Krishnan
34
Forfeiture of Shares (Cont…..)
• Effect of Forfeiture
– Cessation of Membership
– Cessation of liability

Krishnan
35
COMPANY LAW
Debentures

Krishnan
36
DEBENTURES
• The documents which either creates a
debt or acknowledges it

Krishnan
37
Characteristics
• Issued in the form of a certificate.
• It may be or may not be under company seal.
• It usually specifies a particular period or date as
the date of repayment.
• A debenture holder does not have any right to
vote in the companies meetings.
• It generally creates a charge on the undertaking
of the company or some part of its property.

Krishnan
38
Kinds Of Debentures
• Bearer debentures:- these debentures, also
known as unregistered debentures, are payable
to its bearer.
• Registered debentures:-these are the debenture
which are payable to registered holders. A
holder is one whose name appears both on the
debenture certificate and in the company
register of debentures.
• Secured debentures:-Debenture which create
some charge on the property of the company
are known as secured debenture.

Krishnan
39
Contd…
• Unsecured debentures:-debenture which do not
create any charge on the assets of the company
are known as unsecured debenture
• Redeemable debenture:-debentures are usually
issued on the condition that they shall be
redeemed after a certain period.
• Irredeemable debenture:-debenture whose
period of repayment is not fixed also known as
perpetual debenture.

Krishnan
40
Contd…
• Convertible debenture:-the debenture
gives an option to the holder to convert
them into preference or equity shares at a
stated rate of exchange, after a certain
period.
• Non-convertible debenture:-these
debenture don't gave any option to there
holder to convert them into preference or
equity shares.

Krishnan
41
Pari passu clause
• Debentures are usually issued in a series
with pari passu clause. In this case they
are to be discharge rateably,though issued
at different and varying times. if there is no
pari passu clause in term of issue they are
payable according to the date of issue.

Krishnan
42
Debenture with voting right not to be
issued :-A company can’t
issue any carrying voting rights at any
meeting of the company, whether
generally or in respect of particular
classes of business.
Issued of a debentures at a discount:-
debenture can be issued at a discount.

Krishnan
43
Remedies of debenture holder
• Unsecured debenture holder
He may sue for his principal and interest.
He may file petition for winding up of the company ,that
the company is unable to pay its debts.
• Secured debenture holder
debenture holder action:- he may sue on the
behalf of himself and all other debenture holder
of the same class to obtain payment & enforce
his security by sale

Krishnan
44
Contd…
Appointment of receiver:-he may appointed
a receiver if the conditions which gave him
power to do so are fulfilled or apply to the
tribunal in a debenture holders action to
appoint one.
Foreclosure:-he may apply to the tribunal
for foreclosure of the company’s rights to
redeem the debenture.

Krishnan
45
Contd…
Sales:-he may sell the property charged as
security if an express power to do so is
contained in term of issue of debenture.
Proof of balance:-if the company is insolvent
and his security is in sufficient, he may
value his security and prove for the
balance.

Krishnan
46
THANK YOU

Lecture_5_-_Shares_Debentures_f32442294ade2a6544f2c806852f6cb3.ppt

Recommended

Recommended

More Related Content

Similar to Lecture_5_-_Shares_Debentures_f32442294ade2a6544f2c806852f6cb3.ppt

Similar to Lecture_5_-_Shares_Debentures_f32442294ade2a6544f2c806852f6cb3.ppt (20)

Recently uploaded

Recently uploaded (20)

Lecture_5_-_Shares_Debentures_f32442294ade2a6544f2c806852f6cb3.ppt