Shares And Its Meaning Part 3

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Capital raised for any company is huge. It may not be contributed by one or two people. Basically it will be contributed by huge number of shareholders. So, Capital of a company is divisible into indivisible equal units called Shares. They are denominated with face value or par value. A person who buys shares of a company will become owner of that company.

As per Companies Act, 2013 there are different kinds of shares

Preference Shares: Preferential shareholders carry special rights over equity shareholders.

  • They are entitled to get pre-agreed rate of dividend. And the payment of dividend made before payment made to equity shareholders.

  • Repayment of capital at the time of winding up of company will be done first to preference shareholders.

  • These shares can be redeemed as per terms of use.

  • Shareholders do not have voting rights. But they can vote only in special cases.

  • Equity Shares: All shares which are not preference shares are called as equity shares.

    Features of Equity shareholders:

  • Equity shareholders get dividends only after preference shareholders if there exist excess profits. Also rate of dividend is not fixed and decided by Board.

  • Also they will get refund of capital only after preference shareholders at the time of company winding.

  • Shareholders have voting rights in all matters of decisions. Also sometimes they have differential rights to voting.

    Ex: In 2008, Tata Motors introduced equity shares with differential voting rights – the ‘A’ equity shares. According to the issue, Every 10 ‘A’ equity shares have one voting right and they will get 5% points extra dividend than ordinary shares.

Share Capital and Its Meaning & Types:

In order to raise capital company needs to estimate its future capital requirements. After estimation of capital requirement, they will mention it in the capital clause of Memorandum of Associations registered with the Registrar of Companies. Then the company can go for public issue or issue of shares based on its nature of company. Total capital is divided into shares and the capital will be collected from shareholders.

Types of Share Capital:

  • Nominal/Authorised/Registered capital: It is the maximum amount of share capital which a company is authorised to issue as per its Memorandum of Association.

  • Issued capital: It is a part of the authorised capital which the company offers to the public that may include vendors, for subscription or purchase i.e. issue either for cash or other than cash.

  • Subscribed capital: It is that part of issued capital which is taken up for subscription. The subscription may be as per requirements or may get over subscription or under subscription.

  • Called up capital: It is that part of the issued/subscribed capital which is called up by company to pay on the allotted shares and is to be paid by the shareholders on demand.

  • Uncalled capital: Uncalled Capital is that portion of the issued/subscribed capital that is not called up by the company on the shares allotted.

  • Paid up capital: It is the portion of called up capital which is paid by the shareholders, to calculate the paid up capital, the amount of instalments in arrears is deducted from the called up capital.

  • Unpaid capital: It is a part of the called up capital which is called but not paid by the shareholders i.e. calls-in-arrears.

Reserve capital: It is a part of uncalled capital kept for the company’s future requirements. In order to raise this capital company need to pass a special resolution. This can be used only at the time of winding up of the business or liquidatio