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SHARECAPITAL

WHAT IS A SHARE???
 “ by share in a company is not any sum
of money but an interest measured by
the sum of money and made up of
diverse rights
conferred on its share holders by the articles of
the company which constitute a contract between
him and company.”
 Share capital is one of the units in which total
capital of company is divided.
WHAT IS STOCK???
 Stock in a company means ‘ a bundle of
fully paid up shares put together for
convenience so that it may be divided into any
amount and transferred into fractions and sub
divisional without regard to original face value
of the shares.
 A stock cannot issue the stock originally
and can only be obtained by conversion.
a. if shares are fully paid up
b. The articles empower the company to convert
shares
DIFFERENCE BETWEEN SHARE AND
STOCK
SHARE STOCK
A company can make an original A company cannot make an original
issue of shares. issue of stock.

The shares can be fully paid up or The stock must always be fully paid
Partly paid up. up.

The shares are always of fixed The stock has no such fixed
denomination. FOR EX..Rs 10 each denomination.

Registration of share capital with the A stock can be issued only after
registrar is compulsory before Passing a special resolution if
Issuing shares. articles permit.

A share has definite number by A stock has no such number.


which it is distinguished from others.
Modes of issue of
shares:
 For cash
1. At par
2. At premium
3. At discount
 For consideration other than cash
1. Right Share
2. Buy-back
3. Employee stock option plan
Types of shares

As per the provision of section 85 of the Companies


Act, 1956, the share capital of a company consists of
TWO classes of shares, namely:
 Preference Shares
Equity Shares
Preference Shares:

According to Sec 85(1), of the


Companies Act,1956, a preference
share is one, which carries the
following two preferential rights:

•In respect of dividends at a fixed


amount or at a fixed rate.

•To repayment of capital on winding


up.
Equity shares
According to section 85 (2), of Companies Act, 1956,
Equity share can be defined as the share, which is
not preference shares. In other words equity shares
are those shares, which do not have the following
preferential rights:

 Rate of dividend is not fixed, depends on the profit


of the company.
 Ownership lies in hands of the equity shareholders.
Distinction between Preference Shares
and Equity Shares
Basis of difference Preference Share Equity Share
Rate of dividend The rate of dividend on The rate of dividend on
preference share is fixed. equity share is changed from
year to year depending upon
the availability of profits.

Payment of dividend They have a right to receive Dividend on equity shares is


dividend before any paid, after any dividend is
dividend is paid on equity paid on preference shares.
shares.
Participation in Preference shareholders are Equity shareholders are
management not entitled to participate entitled to participate in
in management. management.

Winding up On the winding up, they In this case, they have been
have a right to return of paid only when preferences
capital ahead (before) of capital is paid in full.
the capital returned on
equity shares.
Arrears of dividend If dividend is not paid on In case of equity shares,
these shares in any year, dividend cannot accumulate.
the arrear of dividend may
accumulate.
Voting rights Preference shareholders do Equity shareholders enjoy
not have any voting rights. voting rights.
SHARE CAPITAL

 The term share capital denotes the


amount of capital to be raised or to
raised by the issue of shares of the
company and used in many expressions
Cont’d
 Funds raised by issuing shares in return for
cash or other considerations. The amount
of share capital a company has can change
over time because each time a business
sells new shares to the public in exchange
for cash, the amount of share capital will
increase. Share capital can be composed of
both common and preferred shares.

Also known as "equity financing"


Cont’d
 The amount of share capital a company
reports on its balance sheet only accounts
for the initial amount for which the original
shareholders purchased the shares from
the issuing company. Any price differences
arising from price appreciation/depreciation
as a result of transactions in the secondary
market are not included.
Types of share capital
 Authorized capital
 Issued capital
 Subscribed capital
 Called up capital
 Un-called capital
 Paid-up capital
 Reserve capital
AUTHORISED SHARE
CAPITAL
 It is the maximum amount of share capital
stated in a company’s memorandum which
the company is, for time being , authorised to
raise.

 As the memorandum is registered with


registrar , it is also called registered capital.
ISSUED SHARE CAPITAL
 Itmeans the nominal value of that part
of the authorized capital which is allotted
for cash or for other consideration than
cash and includes shares subscribed by
the signatories of memorandum.
 Moreover , issued capital means that
part of share capital which has been
actually issued or allotted by the
company.
SUBSCRIBED SHARE
CAPITAL
 Itmeans the paid up value of that part of
the authorised which is allotted for cash
or for other consideration than cash and
include the shares subscribed by the
signatories of memorandum.
 Thus , in a company where shares are
fully paid up the ‘subscribed capital’
would be equal to its ‘issued capital'
Cont’d
 Called up capital is that part of allotted
share capital which has been called up by
the company.
 Uncalled capital
 Paid- up capital is called up capital minus
calls in arrears
 Reserve capital is that part of uncalled
share capital which has been reserved by the
company to be called up in the event of
winding up of a company.

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