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Shares
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What are SHARES?Definition:
Sec 2(46) of THE COMPANIES ACT,1956:
A share is a share in the share capital of a Company.
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
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Share Capital
Share: Share is defined as an interest having amoney value and made up of diverse rightsspecified under the articles ofassociation.
Share capital: Share capital means the capital
raised by the company by issue of shares. A share is a share in the share capital of the
company including the stock.
Share gives a right to participate in the profits
of the company, or a share in the assets whenthe company is going to be wound up.
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Features of a share
A share is not a negotiable instrument, but it is amovable property.
It is also considered to be goods under the Sale of
Goods Act, 1930. The company has to issue the share certificate.
It is subject to stamp duty.
The Call on Shares is a demand made for
payment of price of the shares allotted to themembers by the Board of Directors in accordancewith the Articles of Association.
The call may be for full amount or part of it.
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Types of Shares :The different kinds of shares which can be raised by
Companies are :
EQUITY SHARES
PREFERENCE SHARES
DEFERRED SHARES
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Equity Shares :The equity shares or ordinary shares are those shares onwhich the dividend is paid after the dividend on fixed rate
has been paid on preference shares.
Characteristics:
No fixed rate of dividend.
Dividend is paid after dividend at a fixed rate is paid on
preference shares.
At the time of liquidation, capital on equity is paid after
preference shares have been paid back in full. Non redeemable.
Equity shareholders have voting rights & thus, control the
working of the Company.
Equity shareholders are the virtual owners of the Company.
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Preference shares :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.
Characteristics :
Fixed rate of dividend.
Priority as to payment of dividend.
Preference as to repayment of capital during liquidation of the
Company.
Generally preference shareholders do not have voting rights.
According to The Companies (Amendment) Act, 1988, the
preference shares are redeemable & the maximum period for
which they can be issued is 10 years.
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Advantages of preference sharesTax-free statusConsistent dividend payments
Frequency of payments
Disadvantages of preference sharesIt will not move like ordinary stocks.
It might not be the asset type for investors lookingfor explosive gains
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Kinds of Preference Shares :On the basis of cumulation of dividend :
Cumulative Preference Shares:
They are those shares on which the dividend at a fixed rate goes
on cumulating till it is all paid.
Non Cumulative Preference Shares:
These are those shares on which the dividend does not cumulate.
On the basis of participation :
Participating Preference shares:
This type of shares are allowed to participate in surplus profits
during the lifetime of the company & surplus assets duringwinding up.
Non Participating Shares:
These shares are not entitled to participate in surplus profit.
Dividend at fixed rate is given.
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Kinds of preference shares :On the basis of conversion :
Convertible preference shares:
The owners of these shares have the option to convert theirpreference 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 convertingtheir shares into equity shares.
On the basis of redemption:
Redeemable preference shares:
These are to be purchased back by the company after a certainperiod as per the terms of issue.
Irredeemable preference shares:
These are not to be purchased back by the company during itslifetime.
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Deferred Shares :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.
As per the provisions of the COMPANIES ACT,1956, no public
company can issue deferred shares.
Characteristics:
Rate of dividend is not fixed. It depends upon the availability
of profits & the discretion of the Board of the Directors.
Dividend is paid after payment of dividend on equity &
preference shares.
At the time of liquidation, capital on these shares is returned
after capital is repaid on both preference & equity shares.
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Share Certificate and Share Warrant
Share Certificate: The Share Certificate is a documentissued by the company and is prima facie evidence toshow that the person named therein is the holder ( title) ofthe specified number of shares stated therein.
Share certificate is issued by the company to the ( shareholder) allottee of shares.
The company has to issue within 3 months from the dateof allotment. In case of default the allottee may approachthe central government
Share Warrant: The share warrant is abearer documentissued by the company under its common seal. As sharewarrant is a negotiable instrument, it is transferred byendorsement and by mere delivery like any othernegotiable instrument.
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Transfer and Transmission of shares
AOA provides for the procedure of transfer ofshares. It is a voluntary action of the shareholder.
It can be made even by a blank transferIn suchcases the transferor only signs the transfer formwithout making any other entries.
In case it is a forged transfer, the transferorssignature is forged on the share transferinstrument.
Transmission of shares is by operation of law,e.g. by death, insolvency of the shareholder etc.
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Buy-Back of Securities
The company may purchase its securities backand it is popularly known as buy back of shares
To do so , the company has to be authorized
under the AOA. The company has to comply with the provisions
of the Company law to buy back its securities.
The listed company has to seek permission from
the SEBI (SERA 1998). Specifically for theprivate company etc, the Buy Back SecuritiesRules1999 will be applicable.
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Dividends
The sharing of profits in the going concerns andthe distribution of the assets after the winding upcan be called as dividends
It will be distributed among the shares holders
The dividends can be declared and paid out of:Current profits
Reserves
Monies provided by the government and thedepreciation as provided by the companies.It can be paid after presenting the balance sheetand profit and loss account in the AGM
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Dividend
Other than the equity shareholders, eventhe preferential shareholders can get thedividends. Rather they are the first ones to
get the dividends. Dividends are to be only in cash, if
otherwise specified in the AOA.
In exceptional cases, even the centralgovernment may permit the payment ofinterest to shareholders , even though thereis no profit.
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Thank you