Presented by

BHARGAV BARUAH
IIPM, Bangalore
FW-07-09
4th March, 2008; Tuesday,

•9.55 am: The Anil Ambani-controlled

Reliance Power opens for stock
subscription in the Rs 405-Rs 450 range.

•9.56 am: History is created — the stock is

oversubscribed. By evening the Rs 11,600-
crore issue is oversubscribed a staggering
10.55 times. And it’s still three days to go
before subscriptions close.

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 Some Common Figures of
The Market

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 A share in the share capital of a company, and
includes stock except where a distinction
between stock and share is expressed or
implied.
In other words,
a share in a company is one of the units
in which the total capital of the company is
divided.

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 A share in the share capital of a company, and
includes stock except where a distinction
between stock and share is expressed or
implied.

In other words, a share in a company is one of

the units in which the total capital of the
company is divided.

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 Example: If the capital of a
company is 10000 and is divided
into 1000 units of Rs10 each,
each unit of Rs.10 shall be called
a share of the company.

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 SHARES
 SHARES
DEFERRED
PREFERENCE EQUITY
SHARES

CUMULATIVE NON-CUMULATIVE

PARTICIPATING
PARTICIPATING
OR
OR NON-PARTICIPATING
NON-PARTICIPATING

CONVERTIBLE CONVERTIBLE
OR OR
NON-CONVERTIBLE NON-CONVERTIBLE

REDEEMABLE
OR REDEEMABLE
IRREDEEMABLE OR IRREDEEMABLE

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 Such shares enjoy some preferential right:
1: As to the payment of dividend at a fixed rate
during the life of the company.
2: As to the return of capital winding up of the
company.
If any share carry only one of above these two
preferential rights, they will be treated as
equity shares.

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 They do not enjoy normal voting right like
equity share holders, they are however entitled
to vote in following two cases:
When any resolution directly affecting their
rights is to be passed.
When the dividend due (whether declared or
not) on their preference shares or part thereof
has remain unpaid.

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 Cumulative preference shares
Non-cumulative preference shares
Participating preference shares
Non-participating preference shares
Convertible preference shares
Non-convertible preference shares
Redeemable preference shares
Irredeemable preference shares

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  These shares carry the right to receive the
whole of surplus profits after the preference
shares, if any.
 Further, directors have the sole right of
recommending dividends to such shares and as
such they may not get any dividends in case
the director choose so.
 Holders of equity shares are the actual owners
of the company.

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 They have voting rights in the meeting of the company.
 They have a control over the working of the company.
 Equity share holders are paid dividend after paying it to
the preference share holders.
 The rate of dividend on these shares depends upon the
profits of the company. They may be paid a higher rate of
dividend or they may not get anything.
 These share holders take more risk as compared to
preference share holders.
 Equity capital is paid after meeting all other claims
including that of preference share holders.
 They take risk both regarding dividend and return of
capital.
 Equity share capital can not be redeemed during the life
time of the company.

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 •Advantage •Disadvantage
•Equity shares do not create any obligation to •If only equity shares are issued the company
pay a fixed rate of dividend. can not take the advantages of trading on
equity.
•Equity shares can be issued without creating •As equity capital can not be redeemed there
any charge over the assets of the company. is a danger of overcapitalization.

•It is a permanent source of capital and the •Equity share holders can put obstacles in
company has not to repay it except under management by manipulation and organizing
liquidation. themselves.

•Equity share holders are the real owners of •During prosperous periods higher dividends
the company who have the voting rights. have to be paid leading to increase in value
of shares in the market and speculation.

•In case of profits equity share holders are •Investors who desire to invest in safe
the real gainers by way of increased securities with a fixed income have no
dividends and appreciation in the value of attraction for such shares.
shares.
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 •Preference shares
•These shares are entitled to a fixed rate
of dividend.
•Dividend on these shares is paid in
preference to the equity shares.
•Redeemable preference shares may be
redeemed by the company.
•The voting rights of these shares are
restricted.
•The preference shares have preference
to equity shares with regard to payment
of capital on winding up.
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•Equity shares
•The rate of dividend on equity shares
depends upon the amount of profit
available and the funds requirements of
the company for future expansion etc.
•The dividend on equity shares is paid
only after the preference dividend has
been paid.
•Equity shares can not be redeemed
except under a scheme involving
reduction of capital or buy back of its
own shares.
•An equity share holder can vote on all
matters affecting the company.
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  They are also known as “founder shares", since
they are often held by the promoter of the
company.
 They are issued as other ordinary shares and
gets a fixed dividends just like preference
shares.
 But they are the last to receive both as regards
dividends and repayment of capital.

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 Certain restriction on public companies
regarding allotment of shares, may be
discussed under the following heads:
 When no public offer is made
 When public offer was made

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  Where a public company having a share capital
does not offer shares to the public, it need not
issue a prospectus. In such case it shall not
proceed to allot shares unless at least three
days before the first allotment it has filed with
the registrar for registration a statement in lieu
of prospectus.

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 In case when public company offers shares to
the public for subscription, the provisions
relating to allotment may be studied under the
following heads:
First allotment of shares
Subsequent allotment of shares

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A public company can make the first allotment
only after two years of the formation of the
company, and should comply with certain
restrictions:
 Registration of the prospectus

 Minimum subscription

 Application money

 Effect of irregular allotment

 Shares to be dealt in on a stock exchange

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 In case of subsequent allotment of shares
Offered to the public for subscription by a
public company, all the special provisions
applicable to ‘first allotment of shares’
discussed above apply, except the provision
relating to:
Minimum subscription [sec, 69(1)], and
Deposit of application money in a schedule
bank

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 Shares can be issued at par

Shares can be issued at premium

Shares can be issued at discount

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 Every person whose name is entered as a
member of a company has a right to receive a
certificate of his share.
A share certificate shall be under the seal of
the company and shall specify:
The shares to which it relates
The amount paid up thereon
The name, address, and occupation of the share
holder.
Should be signed by atleast 2 directors and
secretary.

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 A share warrant is a document issued by a
public company stating that its bearer is
entitled to the shares specified therein.
A public company limited by shares may
convert its fully paid-up shares into share
warrants.
Advantage of issuing share warrants is that
shares can be transferred by mere delivery of
warrant.

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 Issue Receipt / acknowledgement
Use the prescribed format of covering letter
bear a unique serial number
Must affix date receipt stamp
Shall return share certificates and transfer with
prescribed time of one month

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 Not impound certificates
Dispatch after realization of the stock invest
Ensure adequate security marks
Signature difference
- Original transfer deed
- Original Certificate
- Original objection memo with the
reason

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 In order to finance its activities, a company
needs capital which is raised by a public
company by the issue of a prospectus inviting
deposits or offers for shares and debentures
from the public .

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 DEFINITION
Share Capital is the capital
raised by a company by the
issue of shares.
  NOMINAL OR AUTHORISED OR REGISTERED
CAPITAL
 ISSUED CAPITAL
 SUBSCRIBED CAPITAL
 CALLED-UP CAPITAL
 UNCALLED CAPITAL
 PAID-UP CAPITAL
 REVERSED CAPITAL
 FIXED OR BLOCK CAPITAL
 WORKING OR CIRCULATING CAPITAL

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 This is the sum stated in the memorandum of
association as the capital of the company.
Maximum amount which the company is
authorized to raise by issuing shares.
Also known as registered capital.

EG: Nominal capital may be Rs 10,00,000 divided

into 1,00,000 equity shares of Rs 10 each

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 It is the part of the authorized or nominal capital
which the company needs for the time being
and has been issued for “PUBLIC
SUBSCRIPTION”

EG: out of the authorized capital of Rs10,00,000, the

company may decide to issue for public subscription
only Rs 6,00,000 divided into 60,000 equity shares

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 The amount of the issued capital which has
been taken up by the public is known as the
SUBSCRIBED CAPITAL

EG: out of 60,000 equity shares issued for

subscription, only 50,000 shares maybe
taken up by public. Subscribed capital will
be 5,00,000 shares of Rs 10 each

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 The company does not need the full nominal or
face value of its subscribed capital in which
case it calls only the part of the face value

EG: If the company decided to call up Rs. 5 per

share out of its nominal value of Rs.10

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 The difference between the subscribed capital
and the called up capital is known as
UNCALLED CAPITAL

EG: The subscribed capital is Rs. 5,00,000, the

called up capital is Rs. 2,50,000 Thus uncalled
capital is Rs 2,50,000

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 Often, some of the subscribers for shares do not
pay the full amount called up for them,
Therefore the amount actually paid by the
shareholders is known as paid-up capital.

EG: If out of the called up capital of Rs.

2,50,000 the paid-up capital is Rs. 2,40,000,
the un-paid capital will be Rs. 10,000

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 It is the part of the capital of a company.
Which shall not be called up except at the time
of winding up of the company.

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 It is that part of the capital which is invested in
fixed assets which are intended to be kept in
business more or less permanently.

EG: Investment made in land and building,

plant and machinery, is fixed capital

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 This capital consists of assets manufactured or
acquired for sale at profit

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The most usual form of borrowing by a company
is by the issue of debentures. According to
sec.2(12) ‘debenture’ includes debenture stocks,
bonds and any other securities of a company
whether constituting a charge on the assets of the
company or not.
‘Debenture’ means a document which either creates
a debt or acknowledges it, and any document
which fulfills either of these conditions is a
debenture.

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 It is issued by a company and is usually in the
form of a certificate which is an
acknowledgement of indebtedness

 It is issued under the company’s seal. It need

not, however, be necessarily under the
company’s seal.

 It is one of series issued to a number of lenders.

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 It usually specifies a particular
period or date as the date of
repayment

It generally creates a charge on the

undertaking of the company or some
parts of its property ; but there may
be debentures without any such
charge.

A debenture holder does not have

any right to vote in the company
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 Bearer debenture : These debentures also
known as unregistered debentures, are payable
to its bearer. These are regarded as negotiable
instruments and are transferable by delivery.
 Registered debentures: These are the
debentures which are payable to the register
holders. These are transferable in the manner
specified in the conditions endorsed thereon.
 These are not negotiable instruments

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 Secured debentures : - Debentures which
create some charge on the property of the
company. The charge may be a fixed charge or
a floating charge
 Unsecured or naked debenture :- Debentures
which do not create any charge on the assets of
the company. The holders of these debentures
like ordinary unsecured creditors may sue the
company for recovery of the debt.

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  Redeemable debentures :- Debentures are
usually issued on the condition that they shall
be redeemed after a certain period. They may
be re-issued after redemption in accordance
with the provisions of section. 121.

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  Irredeemable debentures :- A debenture will
be treated as irredeemable where either there is
no period fixed for repayment of the principal
amount or repayment of it is made conditional
on the happening of an event which may not
happen for an indefinite period or may happen
only in certain specified and contingent events.

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 Convertibility debentures :- These debentures
give an option to the holders to convert them
into preference or equity shares at stated rates
of exchange, after a certain period. If the
holders exercise the right of conversion, they
cease to be lenders to the company and become
members instead.

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  Non-convertible debentures :- These
debentures do not give any option to their
holders to convert them equity shares. They
are to be duly paid as and when they are
mature.

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 First debentures :- These are the debentures
which are to be repaid in priority to other
debentures which may be subsequently issued.

 Second debentures :- These are the debentures

which are to be paid after the “first
debentures” have been redeemed.

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Debentures are usually issued in a series with a
pari passu clause. In such a case they are to be
discharged rateable, though issued at different
and varying times. In the event of a deficiency
of assets to satisfy the whole debt secured by
the issue of debentures, they will abate
proportionately.

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  The trust deed contains the terms and conditions endorsed in

the debentures and defines the rights of debenture-holders and

the company. It usually empowers the trustees to appoint a

receiver to protect their interest. I t also contains other

provisions concerning meeting of the debenture-holders

supervision of the assets charged, and the keeping of a register

of a debenture holders. Whenever ther is a default by the

company, the security is enforced or action is taken by the

trustees on behalf of all the debenture-holder

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 “ ”

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