SHARE CAPITAL (Companies Act, 2013)

We have discussed earlier post The Company under the Companies Bill 2012 which is still relevant when the bill become Act; all companies do not have share capital. Only companies limited by shares have share capital.

KIND OF SHARE CAPITAL (SECTION 43):

The share capital of companies limited by share shall be of two kinds, namely;

(a)  equity share capital;

(b) Preference share capital.

Here, use of two terms “Shall be” and “and” denote this is a requirement to have both kind of share capital but, according to further reading, company may have zero equity or preference share capital.

Equity Share Capital:

For this Section, “Equity share capital” means all share capital which is not preference share capital. Equity share capital may be of divided into;

(i)           Equity share capital With voting right; or

(ii)          Equity share capital with differential rights.

This differential rights may have difference related to dividend, voting or otherwise in accordance with rules. The term otherwise bring scope for innovation with in limit of rules. It may be difference related to managing control, power to appoint director, or power to appoint proxy and so on.

Preference Share Capital:

Preference share capital of the issued share capital of the company which carries or would carry a preference right with respect to –

(a)  Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate. Which may be either be free of or subject to income tax; and

(b) Repayment of amount of share capital or share capital deemed to be paid up, whether or not, there is preferential right specified in the memorandum or article of the company.

This Act does not interfere in rights of preference shareholders who are entitled to participate in the proceeds of winding up before commencement of this Act.

NATURE OF SHARES OR DEBENTURES (SECTION 44):

The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

NUMBERING OF SHARES (SECTION 45):

Every share in a company having a share capital shall be distinguished by its distinctive number. This is not required for shares held by beneficial owner of shares, which are in the record of a depository.

CERTIFICATE OF SHARES (SECTION 46):

A certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.

Duplicate Certificate of Shares:

A duplicate certificate of shares may be issued, if such certificate —

(a) is proved to have been lost or destroyed; or

(b) has been defaced, mutilated or torn and is surrendered to the company.

Shares held in depository form:

Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.

Caution: Duplicate Certificate:

If a company with intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.

Voting Rights (Section 47):

Voting rights are subject to provision of Section 43 regarding differential rights and Section 50 regarding denying voting rights on uncalled capital.

Every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company.

This voting right on a poll shall be in proportion to member’s share in the paid-up equity share capital of the company.

Limited Voting Rights to Preference Shareholder:

A preference shareholder shall also be a member of the company. Preference Shareholder shall have a right to vote only on resolution

(a)  which directly affect the right attached to his preference shares;

(b) resolution for winding up of the company; and

(c)  resolution for repayment or reduction of its equity or preference share capital.

In these cases his voting right on a poll shall be in proportion to his share in the paid – up preference share capital of the company.

Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

The proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares.

This is explained here:

Total paid up share capital 400,

Equity share capital 300,

Preference share capital 100

A person holding 20 shares shall have voting right 20% under preference share capital but 5% for total capital.

VARIATION OF SHAREHOLDERS’ RIGHTS (SECTION 48):

Where share capital of the company is divided into different classes and the company want to vary the rights attached to shares of that class this section apply. There must be a provision with respect to such variation is contained in the memorandum or articles of the company. In absence of any such provision in the memorandum or articles, such variation should not be prohibited by the terms of issue of the shares of that class.

Any variation in the right attached to a particular class of share may be varied with the written consent of holders of not less than three – fourth of the issued shares of that class.  Alternatively, this consent may be through a special resolution passed at a separate meeting of the holders of that particular class.

If variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-fourths of such other class of shareholders shall also be obtained in same manner.

Right of Dissenting shareholder:

Where, the holders of not less than 10 percent of issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the tribunal to have the variation cancelled. Where such application is made before tribunal, the variation shall have no effect unless and until it is confirmed by the tribunal.

Any application before tribunal under this section shall be made within twenty – one days after the date on which the consent was given or the resolution was passed. This application may be made by any one or more person as these shareholders may appoint in writing for this purpose.

The decision of the tribunal shall be binding on the shareholders. Is it means, there will be no appeal against such decision of the tribunal except a special leave petition.

The company shall within thirty days of the date of the order of the Tribunal, file a copy of the order with the Registrar.

Caution for this Section:

Where any default is made in complying with the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.

We will discuss provisions related to calls, unpaid capital, premium, discount etc. in a future post.

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Related articles

• The Company under the Companies Bill 2012 (aishmghrana.me)