Introduction To Shares

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Chapter 9 - Shares Presentation.

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Introduction To Shares

  1. 1. Shares Prepared By- Vinay Golchha
  2. 2. Shares 2  A SHARE is the interest of the share holder in a company.  A Share is evidenced by a share certificate (sec.84). A share certificate is issued by a company under its common seal.  Stock is the aggregate of fully paid-up shares ,consolidated & divided for the purpose of convenient holding into different parts. It may be transferable or split up into fractions of any amount, without regards to the original face value. 1/25/2014
  3. 3.  SHARE CERTIFICATE is a document under the seal of the company, Signed by at least 2 directors & secretary ,Specifying the shares, Amount paid-up & name of the share holder.  SHARE WARRANT is a document issued by a public company stating that its bearer is entitled to the shares specified therein.
  4. 4. Share Vs Stock SHARES       Has a nominal value. May not be fully paid. Can only be transferred in round numbers. All are of equal denomination. Always bear distinctive numbers. Can be directly issued to the STOCK       Has no nominal value. Always fully paid up. Is transferable in small fractions May be of Unequal amounts The fractions or parts do not bear distinctive numbers. Cannot be issued directly.
  5. 5. Types Of Shares Preference Shares is a stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Equity Shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. *Sweat Equity Shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company. 5 1/25/2014
  6. 6. Preference Shares 6 1/25/2014 Redeemable Preference Shares Non-Convertible Preference Shares Convertible Preference Shares Non-Participating Preference Shares Participating Preference Shares Non-Cumulative Preference Shares Cumulative Preference Shares
  7. 7. Forfeiture Of Shares 7  The articles generally give powers to Board of Directors to forfeit shares as under: I. II.  If a member fails to pay any call or installment of a call Any other circumstance which the articles may provide. The articles may also provide that the failure by a member to fulfill any engagement with any other member would forfeit his share.  1/25/2014 Power of forfeiture is not inherent in a company and therefore
  8. 8. Issue of Shares at a Premium [Section 78] 8  Companies may issue shares at premium irrespective of the fact whether the shares are listed or not.  No restriction in Companies Act on issue at premium, the only restriction is on the utilization of premium amount.  Premium cannot be treated as profit as such the amount not available for distribution as dividend.  Premium amount must be kept in separate account called Securities Premium Account. 1/25/2014
  9. 9. Issue of Shares at a Premium 9  If premium is received in kind, an amount equal to premium amount must be transferred to Securities Premium Account.  Premium to be used only for the following purposes as mentioned in Section 78(2):  For issuing fully paid bonus shares;  For writing off preliminary expenses;  For writing off commission, discount expenses on issue of debentures; and  For providing for premium payable on redemption of Redeemable Preference Shares or debentures. 1/25/2014
  10. 10. Further Issue of Shares [Section 81] 10  Called Right Shares.  May be issued at any time after two years from incorporation or one year from first allotment, whichever is earlier.  Must be offered to the existing shareholders in proportion to their holding.  For listed company, information on quantum and proportion shall be supplied to the concerned stock exchange.  Company must give notice of offer and the number of shares offered to existing shareholders. 1/25/2014
  11. 11. Further Issue of Shares 11  Give shareholders 15 days to decide.  The notice must state the shareholder's right to renounce the offer in whole or in part in favour of some other person.  The board may dispose of the shares in a manner beneficial to the company.  Condition of issue of shares to persons other than existing shareholders.[Section 81 (1A)]: I. Pass a special resolution in general meeting, and 1/25/2014
  12. 12. Dividends 12   A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits . When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders. Rules I. II. III. IV. V. VI. VII. To be paid only out of Profit Resolution at the AGM Payment of Dividend in Proportion to paid-up capital Establishment of Investor Education & Protection Fund To be paid to Registered Shareholder Unpaid Dividend to be transferred to Unpaid Dividend Accounts 1/25/2014 Penalty for Defaulting Director
  13. 13. Bonus Shares 13  When company accumulates large distributable profits it convert it into capital.  Divide the capital among the existing shareholders in proportion to their entitlement.  Members do not have to pay for such shares.  Bonus issue is a machinery for capitalizing distributable profits.  Must be sanctioned in the AGM on the recommendation of the board.  1/25/2014 Bonus shares is not income and hence not taxable.
  14. 14. Allotment of Shares(Rules To Observed) 14  A prospectus shall be filed with Registrar.  No allotment of shares shall be made to public unless the minimum subscription amount stated in the prospectus is raised and received by the company.  Application for shares should be made in prescribed form.  No allotment shall be made until the beginning of the 5th day after a date on which prospectus is issued. 1/25/2014
  15. 15. Cont.  Companies intending to offer must make an application to one or more stock exchanges for permission.  The whole of the application money should have been paid and received by company in cash.  All moneys received shall be deposited in a Scheduled Bank until the certificate to commence business is obtained.
  16. 16. Transfer Of Shares 16  A share is a movable property, transferable in the manner provided by the articles.  A share holder has a statutory right, in the absence of restrictions in the articles, to transfer shares to any person without consent of anybody.  A private company with share capital may restrict the right to transfer its shares by its articles. Transfer of shares is less strict 1/25/2014 in a public company.
  17. 17. Transmission Of Shares 17  Where shares pass by operation of law from one person to another.  For example, by holder’s insolvency, or lunacy or by death and inheritance.  The person to whom shares are transmitted shall make an application to the company for transmission of shares in his name.  In case if the company refuses to register transmission, right of appeal arises in the same manner as in case of transfer.  No instrument of transfer is required. 1/25/2014

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