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Kinds of-shares-legal-aspects

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Kinds of-shares-legal-aspects

  1. 1. Legal Aspects Of Business Topic : Kinds Of Shares
  2. 2. Bibliography : <ul><li>Legal Aspects Of Business – A. Pathak </li></ul><ul><li>The company law – Garg & Chawla </li></ul><ul><li>Financial Accounting – SA Siddiqui </li></ul><ul><li>Company Accounts – Juneja, Chawla & Saxena </li></ul>
  3. 3. Contents : <ul><li>What are SHARES. </li></ul><ul><li>Kinds of Shares : </li></ul><ul><ul><ul><li>Equity Shares </li></ul></ul></ul><ul><ul><ul><li>Preference Shares </li></ul></ul></ul><ul><ul><ul><li>Deferred Shares </li></ul></ul></ul><ul><li>Kinds of Preference Shares </li></ul>
  4. 4. What are SHARES? Definitions: Sec 2(46) of THE COMPANIES ACT,1956: “ A share is a share in the share capital of a Company.” Boreland Trustees v/s Steel Bros. & Co. Ltd.: “ A share represents the interest of a share holder in the capital of the Company & this interest is measured by the number of shares he is holding & the amount paid by him to the Company on shares.” Thus, the amount of capital to be raised by a Company is always divided into small parts or units of equal value & these units are called SHARES
  5. 5. Kinds Of Shares : <ul><li>The different kinds of shares which can be raised by Companies are : </li></ul><ul><li>EQUITY SHARES </li></ul><ul><li>PREFERENCE SHARES </li></ul><ul><li>DEFERRED SHARES </li></ul>
  6. 6. Equity Shares : <ul><li>The equity shares or ordinary shares are those shares on which the dividend is paid after the dividend on fixed rate has been paid on preference shares. </li></ul><ul><li>Characteristics: </li></ul><ul><li>No fixed rate of dividend. </li></ul><ul><li>Dividend is paid after dividend at a fixed rate is paid on preference shares. </li></ul><ul><li>At the time of liquidation, capital on equity is paid after preference shares have been paid back in full. </li></ul><ul><li>Non redeemable. </li></ul><ul><li>Equity shareholders have voting rights & thus, control the working of the Company. </li></ul><ul><li>Equity shareholders are the virtual owners of the Company. </li></ul>
  7. 7. Preference shares : <ul><li>Preference shares are those shares which carry with them preferential rights for their holders, i.e, preferential right as to fixed rate of dividend & as to repayment of capital at the time of winding up of the Company. </li></ul><ul><li>Characteristics : </li></ul><ul><li>Fixed rate of dividend. </li></ul><ul><li>Priority as to payment of dividend. </li></ul><ul><li>Preference as to repayment of capital during liquidation of the Company. </li></ul><ul><li>Generally preference shareholders do not have voting rights. </li></ul><ul><li>According to The Companies (Amendment) Act, 1988, the preference shares are redeemable & the maximum period for which they can be issued is 10 years. </li></ul>
  8. 8. Kinds of Preference Shares : <ul><li>On the basis of cumulation of dividend : </li></ul><ul><ul><li>Cumulative Preference Shares: </li></ul></ul><ul><ul><li>They are those shares on which the dividend at a fixed rate goes on cumulating till it is all paid. </li></ul></ul><ul><ul><li>Non Cumulative Preference Shares: </li></ul></ul><ul><ul><li>These are those shares on which the dividend does not cumulate. </li></ul></ul><ul><li>On the basis of participation : </li></ul><ul><ul><li>Participating Preference shares: </li></ul></ul><ul><ul><li>This type of shares are allowed to participate in surplus profits during the lifetime of the company & surplus assets during winding up. </li></ul></ul><ul><ul><li>Non Participating Shares: </li></ul></ul><ul><ul><li>These shares are not entitled to participate in surplus profit. Dividend at fixed rate is given. </li></ul></ul>
  9. 9. Kinds of preference shares : <ul><li>On the basis of conversion : </li></ul><ul><ul><li>Convertible preference shares: </li></ul></ul><ul><ul><li>The owners of these shares have the option to convert their preference shares into equity shares as per the terms of issue. </li></ul></ul><ul><ul><li>Non-convertible preference shares: </li></ul></ul><ul><ul><li>The owners of these shares do not have any right of converting their shares into equity shares. </li></ul></ul><ul><li>On the basis of redemption: </li></ul><ul><ul><li>Redeemable preference shares: </li></ul></ul><ul><ul><li>These are to be purchased back by the company after a certain period as per the terms of issue. </li></ul></ul><ul><ul><li>Irredeemable preference shares: </li></ul></ul><ul><ul><li>These are not to be purchased back by the company during its lifetime. </li></ul></ul>
  10. 10. Status of Preference Shares, if Articles of Association are silent : <ul><li>Preference shares will be presumed to be: </li></ul><ul><li>Cumulative </li></ul><ul><li>Non-Participating </li></ul><ul><li>Irredeemable and </li></ul><ul><li>Non-Convertible. </li></ul>
  11. 11. Deferred Shares : <ul><li>Deferred shares are those shares on which the payment of dividend and capital (at the time of winding up of a company) is made after money is paid in full on preference shares and equity shares. </li></ul><ul><li>As per the provisions of the COMPANIES ACT,1956, no public company can issue deferred shares. </li></ul><ul><li>Characteristics: </li></ul><ul><li>Rate of dividend is not fixed. It depends upon the availability of profits & the discretion of the Board of the Directors. </li></ul><ul><li>Dividend is paid after payment of dividend on equity & preference shares. </li></ul><ul><li>At the time of liquidation, capital on these shares is returned after capital is repaid on both preference & equity shares. </li></ul>
  12. 12. Thank you!!
  13. 13. Queries, if any, are welcome.

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