share capital and membership

1. 2. SHARE CAPITAL
& MEMBERSHIP
Dr. Reenu Mohan

2. Share capital
O Share capital is the ownership capital of a
company raised by the issue of its shares. It is
the document that acknowledges the
ownership of a company to the limit of the
amount contributed. Share capital is
composed of capital generated from the funds
by issuing shares for cash and also non-cash
considerations or kind. The share capital may
change as the company issues new shares to
generate more money over the course of its
lifetime as the business requires more capital
for expansion and growth.

3. TYPES OF SHARE CAPITAL
O Authorized or Registered Capital:
It can be defined as the maximum number
of shares which a company can trade as it
is stated in its Articles of Association or as
contracted and decided by voting by the
shareholders. Authorized capital is usually
not entirely used by the company so as to
issue added number of stock in future if
the company requires increasing capital
rapidly in some urgent cases.

4. Issued Capital:
Issued capital can be taken as the part of
the authorized capital, which is actually
offered to the public for subscription.

5. Paid-up Capital:
Paid-up capital can be described as the
quantity of money that a company receives
from its shareholders for the purchase of
shares. Paid-up capital is the amount which
is generated after the company sells its
shares straight to shareholders in the
primary market.

6. Called-up capital:
The amount of share capital due on shares
is normally collected from the shareholders
in installments at different intervals. The
called-up capital is that part of the nominal
value of shares subscribed by shareholders
which are requested by the company for
payment.

7. Subscribed Capital:
Subscribed capital can be defined as the
part of the issued capital which has been
subscribed by investors of the company.
When any company issues a certain part of
its authorized capital, the investors may
subscribe or may not subscribe to all
number of its shares.

8. SHARES
O It can be expressed as certain invisible units of a
fixed amount, i.e., the units are known as ‘shares’.
Share may be defined as an interest in the
company entitling the owner thereof to receive
proportionate part of the profits.
O Section 2(46) defines it as a share in the share
capital of company and includes stock where
distinction between share and stock is expressed
or implied.

9. Kinds Of Shares
O The different kinds of shares which can be
issued by Companies are :
O EQUITY SHARES
O PREFERENCE SHARES
O DEFERRED SHARES

10. equity shares
O are those shares on which the dividend is paid after
the dividend on fixed rate has been paid on
preference shares.
Characteristics:
O No fixed rate of dividend.
O Dividend is paid after dividend at a fixed rate is paid
on preference shares.
O At the time of liquidation, capital on equity is paid
after preference shares have been paid back in full.
Non redeemable.
O Equity shareholders have voting rights
O Equity shareholders are the real owners of the
Company.

11. SWEAT EQUITY SHARES
O Shares which are issued by the company to
its employees or directors at a discount for
consideration other than cash for providing
know-how. The following conditions must be
fulfilled---
O Authorised by a special resolution.
O Resolution specifies no. of shares, current
market price, consideration and classes of
directors or employees to whom such shares
are issued.
O At least one year has elapsed after
commencement of business.
O Rules framed by SEBI are followed in this
behalf.

12. Preference shares
O are those shares which carry with them preferential
rights for their holders,
Characteristics :
O Fixed rate of dividend.
O Priority as to payment of dividend.
O Preference as to repayment of capital during
liquidation of the Company.
O Generally preference shareholders do not have
voting rights.
O According to The Companies (Amendment) Act,
1988, the preference shares can be redeemable &
the maximum period for which they can be issued is
10 years

13. Kinds of Preference Shares :
On the basis of cumulating of dividend :
O Cumulative Preference Shares: They
are those shares on which the dividend at
a fixed rate goes on cumulating till it is all
paid.
O Non Cumulative Preference Shares:
These are those shares on which the
dividend does not cumulate.

14. Kinds of Preference Shares :
On the basis of participation :
Participating Preference shares: This type
of shares are allowed to participate in
surplus profits of the company & surplus
assets during winding up.
Non Participating Shares: These shares
are not entitled to participate in surplus
profit. Dividend at fixed rate is given.

15. Kinds of Preference Shares :
On the basis of conversion :
Convertible preference shares: The
owners of these shares have the option to
convert their preference shares into equity
shares as per the terms of issue.
Non-convertible preference shares: The
owners of these shares do not have any
right of converting their shares into equity
shares

16. Kinds of Preference Shares :
On the basis of redemption:
Redeemable preference shares: These
are to be purchased back by the company
after a certain period as per the terms of
issue.
Irredeemable preference shares: These
are not to be purchased back by the
company during its lifetime.

17. Deferred Shares
It is a share that does not have any rights to
the assets of the company undergoing bankruptcy
until all common and preferred shareholders are
paid. These shares are held by Founders or beginner
of the company.
Characteristics:
O Rate of dividend is not fixed. It depends upon the
availability of profits.
O Dividend is paid after payment of dividend on
equity & preference shares.
O At the time of liquidation, capital on these shares is
returned after capital is repaid on both preference
& equity shares.

18. Issue of shares
O Issue at “PAR”-The issue price is
“NOMINAL” or “FACE” value of the shares
and debentures.
O Issue at a Premium -The issue price may
be HIGHER than the par value of the
shares and debentures.
O Issue at a Discount -The issue price may
be LOWER than the par value of the
shares and debentures.

19. Issue of shares
To issue shares a company follows a
definite procedure which is controlled and
regulated by the
Companies Act and Securities Exchange
Board of India (SEBI).
There are different ways of issue of shares
which may be:
(A)For consideration other than cash
(B)For cash

20. PROCEDURE FOR ISSUE
1. Issue of prospectus – to attract the
public for investment.
2. To receive Applications – name of the
schedule bank, dates of opening and
closing, application form, etc.
3. Allotment of Shares – only when
minimum subscription is received (90%
of the issued amount)
4. To make Calls on Shares – the first and
second installments are for application
and allotment

21. Issue of right shares
O When a company which has already issued shares
wants to raise capital through the further issue of
shares, It is under a legal obligation to first offer the
fresh shares to its existing shareholders because of
the right of existing shareholders to apply for the
shares on priority basis, the issue is known as right
issue.
O Section 81 of the companies act,1956 provides that
where a public limited company proposes to
increase its share capital , by allotment of further
shares then,---
O Such shares shall be offered to the existing
shareholders in proportion to their equity holding on
that date

22. Issue of right shares
O The offer shall be made by a notice
specifying the number of shares offered
and limiting a time not less than 15 days ,
within which the offer, if not accepted, will
be deemed to have declined.
O The offer should specify that the
concerned person can renounce the
shares offered to him in favour of another
person.

23. Merits of right shares
O Right shares are offered at a price lower than
market price, so the shareholders can make a
profit by renouncing their right to some other
persons.
O Right issue helps in preserving the control of
co. in the hands of existing shareholders.
O Raising of capital is more certain.
O Improves the image of company
O Expenses of issue are lower in this case.
O Good opportunity to existing shareholders to
invest in well conversant co.
O Directors cannot misuse their power by
issuing shares to their friends.

24. Securities premium amount
The premium amount of the shares issued is
credited to a separate account called
‘Securities Premium Account’
It can be used for:
O To issue fully paid up bonus shares to the
shareholders
O To write off preliminary expenses of the
company
O To write off the expenses or commission
paid, or discount allowed on issue of the
shares or debentures of the company
O To pay premium on the redemption of
preference shares or debentures of the
company.

25. Call in arrears
Sometimes, some of the shareholders may
fail to pay the amount due from them on
allotment or on call. The amount
remaining unpaid on allotment or on calls
is called calls-in-arrears.
or
Any installment amount whether allotment
money or call money, called but the
company, but not paid by the shareholder.

26. SHARE CERTIFICATE
O Section 84 of the companies Act defines
share certificate as ‘A certificate, under
the common seal of the company,
specifying only the shares held by any
member, shall be a prima facie evidence
of the title of the member of such shares’.

27. SHARE CERTIFICATE
O A Share Certificate is a document of title to
shares. It is issued to the shareholders of the
company, as evidence to their shareholding in
the company. The company issues the Share
Certificate under its Common seal. It must
be signed by two directors and countersigned
by the authorized signatory or secretary of the
company. Every Share Certificate must be
stamped with revenue stamp of proper value.

28. CONTENTS OF SHARE
CERTIFICATE
O A. Name and Address of the registered office of the
company.
O b. Name(s) of the Shareholder(s).
O c. Serial number of share certificate.
O d. Number of Share(s) held.
O e. Number and class of shares. (i.e. whether Preference or
equity shares)
O f. Nominal value and amount paid on each share.
O g. Distinctive Number(s) of shares.
O h. Date of issue of Certificate.
O i. Signature of two directors and one authorized
signatory.
O j. Seal of the company against the affixed revenue
stamp.
O k. The face value of the shares.
O l. Whether the face value is fully paid or partly paid.

29. Provision regarding share
Certificate
O The share certificate must be prepared
and delivered to the shareholders within 3
months of allotment of shares.
O Share certificate is issued only after
passing of resolution in the board meeting
to that effect.
O All the particulars of share certificate must
be entered in the Register of Members.
These entries must be authenticated by
the secretary or signatories to the
certificate.

30. Share warrant
A Share Warrant is a document issued by the
company under its common seal, stating that its
bearer is entitled to the shares or stock specified
therein. Share warrants are negotiable
instruments. They are transferable by mere
delivery without registration of transfer. Even
though it does not bear the name of the
shareholder, it is a legal document. It is issued
by the company under the common seal and it
is signed by at least two directors and company
secretary.

31. Conditions for issuing share
warrants
1. Only a public company can issue share
warrants.
2. It must be authorized by the Articles of
Association.
3. The shares must be fully paid-up.
4. The approval of the Central Government
is necessary.

32. Transfer of shares
Transfer of shares means the voluntary
handing over of the rights and duties of a
member (as represented in a share of the
company) from a shareholder who wishes to
not be a member in the company any more
to a person who wishes of becoming a
member.
It is a transaction resulting in a change of
share ownership.

33. PROCEDURE OF TRANSFER
Section 108 requires the transfer to be in a
proper instrument of transfer known as ‘Share
Transfer Form’ which is required to be
presented to the Registrar of Companies before
it is signed and filled up by the transferor
O ) Instrument of transfer must be executed by
both transferor and transferee.
O 2) It must be duly stamped
O 3) It must be delivered to the company along
with certificate relating to shares transferred
O 4) Must be in the prescribed form and
presented to prescribed authority.

34. TRANSMISSION OF SHARES
Transmission of shares is a process by
operation of law where under the Shares
are registered in a Company in the name of
deceased person or an insolvent person are
registered in the name of his legal heirs by
the Company on proof of death or
insolvency as the case may be.
Transmission of shares takes place when
registered member dies or is adjudicated
insolvent or lunatic by competent court.

35. BASIS TRANSFER TRANSMISSION
Affected by Deliberate act of
parties
Insolvency, death,
inheritance or lunacy
of the member.
Initiated by Transferor and
transferee
Legal heir or receiver
Consideration Adequate
Consideration
required
NO Consideration
required
Execution of valid
transfer deed
yes no
Stamp duty
Payable on the
market value of
shares.
Not payable

36. Dematerialisation
O Dematerialisation is the process of
converting the physical form of shares into
electronic form. An investor has the option
to hold shares either in physical or
electronic form .The process of converting
the physical form of shares into electronic
form is called in short demats. The
converted electronic data is stored with
the depository from where they can be
traded.

37. Depository participant
O Depository participant is a representative
of the depository .The DP maintains the
investors securities account balances and
intimates him about the status of holdings.
O Private companies should register with
both the central depositories i.e., National
Securities Depository Limited (NSDL) and
Central Securities Depository Limited
(CDSL).

38. PROCEDURE FOR DEMAT
O Step 1: Beneficiary Owner has to open a demat
account with a Depository participant (DP) and
obtain an account number.
O Step 2: Owner need to fill in a Demat Request
Form (DRF) and submit the same with the physical
certificate/s to the depository participants for
dematerialization. For each ISIN, a separate DRF
has to be used.
O Step3: DP would verify that the form has been
filled correctly.
O Step 4: DP would setup a demat request on the
CDSL or NSDL system and send the same to the
Company and the Registrar and Transfer Agent..

39. PROCEDURE FOR DEMAT
O Step 5: Issuer/ Registrar and Transfer Agent (RTA) would
verifies the genuineness of the certificates and confirms the
request.
O Step 6: Once the request has been successfully made, DP
would mutilate the physical certificates, generate a Demat
Request Number (DRN) and send an electronic
communication to the depository and courier the form and
the share certificate to the company .
O Step 7: On receiving confirmation, depository will credit an
equivalent number of securities in the demat account of the
owner maintained with CDSL or NSDL.
O Step 8: The depository will electronically download the
details of the demat request and communicate the same to
the electronic registry maintained by the Registrar of
Companies

40. ADVANTAGES OF DEMAT
O There is no risk due to loss on account of fire, theft or
mutilation.
* There is no chance of bad delivery at the time of
selling shares as there is no signature mismatch.
* Transaction costs are usually lower than that in the
physical segment.
* The bonus /rights shares allotted to the investor will
be immediately credited into his account.
* Share transactions like sale or purchase and
transfer/transmission etc. can be effected in a much
simpler and faster way.

41. Members
O According to companies act member means:
1.The persons who have subscribed to the
Memorandum of a company.
2. Every other person who has agreed in writing
to become a member of the company and
whose name has been entered in the Register
of Members.
3. Every person holding equity share capital of a
company and whose names are recorded as
beneficial owner in the depository records

42. Members
O The members or the shareholders are the real
owners of a company. A member of a
company is a person who contributes to the
investment of a company.
O any person who is competent to enter into
valid contract can become a member of a
company.
O A person who holds a share warrant is a
shareholder but he is not a member of the
company.
O The legal representative of a deceased
member is only a shareholder but not a
member.

43. MODES of acquiring
membership
O a person may acquire the membership of a
company
O by subscribing to the Memorandum before
the registration of the company.
O by applying for the shares offered by a
company.
O by becoming a transferee of a share or shares
and being placed on the register of members.
O by transmission of shares on succession to a
deceased or bankrupt member and the
consequent registration in the register of the
company.

44. RIGHTS OF MEMBERS
O Right to receive notice of meetings, attend, to take
part in the discussion and vote at the meetings.
O Right to transfer the shares [in case of public
companies].
O Right to receive copies of the Annual Accounts of
the company.
O Right to inspect the documents of the company
such as register of members, annual returns, etc.
O Right to participate in appointments of directors
and auditors in the Annual General Meetings.
O Right to apply to the Court for winding up of the
company.

45. RIGHTS OF MEMBERS
O Right to obtain copies of Memorandum and
Articles.
O Right to receive a copy of special notice when
special notice is served on the company.
O Right to obtain a copy of the minutes of the
general meeting.
O Right to requisition an Extra-ordinary General
meeting (EGM) of the company.
O Right to vote at a general meeting in respect
of any matter requiring an ordinary resolution
or a special resolution.

46. Duties of members
O The main duty of shareholder is to pay the
company the sum which remains outstanding for
the agreed amount of the share(s) that have been
issued.
O Shareholders should participate in the general
body meetings so that they can see and also can
advise on the matters which they feel is not going
good.
O Shareholders should consult on the matters of
finance and other topics.
O Shareholders should be in touch with other
members of the company so that they can see the
work progress of the company.

47. LIABILITY OF MEMBERS
O . Companies limited by shares: Companies
limited by shares are the most common and
may be a public company or a private
company, where the liability of members of a
company is limited to amount unpaid on the
shares.
O 2. Companies limited by guarantee: In this
type of companies liability of members of a
company is limited to a fixed amount which
members undertake to contribute to the
assets of company in the event of its being
would up.