Defenition of Share

The capital of a company is divided into small parts and

each part is known as a share.
Section 2(46) of the Companies act, 1956 has defined a
share as follows Share means share in the share capital
of the company and includes stock, expect when a
distinction between stock and share is expressed or
implied.

Nature of Share
The shares of any member in a company are movable
property and they can be transferred in the manner
provided in the articles of the company [Section 82].
The term goods as defined under Section 2(7) of the
sale of goods act includes shares also.
Share cannot be transferred by mere delivery like
ordinary goods.
The property in shares belong to the registered share
holder and it cannot be transferred to another person
except according to the articles of the company which
may place certain restrictions in this respect.

Kinds of shares
Before the company act 1956,wae passed, the company
could issue three types of shares; (a) Equity Shares (b)
Preference shares (c) Deferred share.
But the Companies Act 1956 a company can issue only two
types of shares. (a) Equity share (b) Preference share
Section 86, as amended by the companies (amended) act
2000, provides that new issues of share capital of
accompany limited by shares shall be of two kinds namely
(a) Equity Share capital

(b) Preference share capital

Types of shares
Preference share

Cumulative & non cumulative

Participating & non participating

Convertible & non convertible

Redeemable & irredeemable

Equity share

With voting rights.

With differential voting rights.

Share capital
The term share capital refers to the amount of money
raised by the issue of share.
Under the Companies Act, the capital of a company
refers to the following
(1) Nominal or registered capital (2)Issued capital
(3)Subscribed capital

(4)Called-up capital

(5)Paid-up capital

(6)Reserve capital

clause

Alternation of capital

Alteration of share capital (Sections 94-97).

Reduction of share capital (Sections 100-105).
Reserved share capital or reserve liability (Sections 99).
Variations of the right of the share holders (Sections
106-107).
Reorganizations of capital (Sections 390-391).

Shareholders
The term share holder refers to a person who holds shares in a
company, while the term member refers to a person whose
name appears on the register of the member.
Section 41 of the companies act 1956 defines a member a person
who has signed the memorandum of association, and every other
person who agrees in writing to become a member and whose
name is entered into the register of members.
Ordinarily, the terms members & shareholder are synonymous
but, precisely, this is so only in the case of a company limited by
shares, a company limited by guarantee and having a sharing
capital and an unlimited company whose capital is held in definite
shares.

Modes of acquiring
membership
By
By
By
By
By
By

subscribing to the memorandum

agreeing to purchase qualification shares
application and allotment
transfer
transmission of shares
estoppel

Who can be members or

shareholders?
Minor(is incompetent to enter into any contract)
Partnership Firms(is not a legal person &partners may not remain
constant)
Foreigners(Foreign exchange management act)
Insolvents(until his name appears on register)
Companies(if permitted by its article)
Married women
Trustees(not bound to recognize the existence of firm)
Registered societies(Societies registration act 1860)
Person taking shares in fictitious name(Sec 68-A)
Joint-holders.(two or more person)

Rights of members
He has a right to obtain copies of memorandum of
association, articles of association and certain
resolutions and agreements on request and payment of
the prescribed fees.[Sec.39]
He has the right to have the certificate of shares held by
him within three months of the allotment. [Sec.113]
He has the right to transfer his shares or other interests
in the company subject to the manner provided by the
articles of the company. [Sec.82]
He has the right to appeal to the Company Law Board
when the company refuses or fails to register the
transfer of shares.[Sec.111]

Contd.
He is entitled to receive a copy of the statutory report.
[Sec.219]
He is entitled to receive a copy of annual reports.[Sec
219]
He is entitled to receive notices of general meetings.
He has the right to participate in the appointment of
auditors and the election of directors at the annual
general meeting of the company.[Sec.224 & 225]
He has the right to make an application to the Company
Law Board for calling annual general meeting if the
company fails to call such a meeting within the

Debentures
Uniform parts of a loan raised by a company are known as
debentures.
Section 2(12) states that a debenture includes debenture stock,
bonds and any other securities of a company whether constituting
charge on the assets of the company or not.
A debenture may be defined as an instrument in writing, signed by
the company under its common seal, acknowledging the debt due
by it to its holders.
It may also be mentioned in the instrument that the company shall
pay back the money at a specified date and that till the specified
date, the debentureholder shall be entitled to interest on the
amount lent to the company at a fixed rate.

Kinds of debentures
Registered debentures and bearer debentures.
Redeemable and irredeemable debentures.
Secured and unsecured debentures.
Convertible and non-convertible debentures.

Issue of debentures
A private company can issue debentures immediately after obtaining the
certificate of incorporation. But a public company can issue debentures only
after obtaining a certificate of commencement of business.[Sec.149(1)]
The power to issue debentures rests with the board of directors, but the
power must be exercised by the board only by means of resolution passed at
a meeting of the board .[Sec.292(1)]
Debentures can be issued by directors for any amount authorised by the
articles, but the amount shall not exceed the aggregate of the paid-up
capital of the company and its free reserves except with the consent of the
company in general meeting.[Sec.293(d)]
Debentures can be issued at par, at discount or at premium. The companies
Act does not lay down any restriction in this respect. Debentures may be
redeemable at par or at premium, but their redemption at discount is
prohibited.

Important points regarding

debentures
Transfer and Transmission of Debentures: Bearer
debentures are transferable by mere delivery. The
company keeps no records of transfers. A bearer
debenture is a negotiable instrument and a person who
acquires it in good faith and for value gets a good title
irrespective of any defect in the title of transferor. If the
debentures are registered debentures, they can be
transferred only in the manner laid down by the
conditions on the back of the debenture bond or in the
articles.

Register and Index of

Debentureholders
Every company shall keep a register of the holders of its debentures and
enter therein the following particulars, namely (a) the name, address and
the occupation of each debentureholder; (b) the debentures held by each
holder, distinguishing each debenture by its number and the amount paid
or agreed to be considered as paid on those debentures; (c) the date on
which each person entered in the register as a debentureholder; and (d)
the date on which any person ceased to be a debentureholder [Sec.152(1)]
Every company having more than fifty debentureholders shall keep an
index of debentures unless the register of debentureholders is in such form
as in itself constitutes an index. The company shall make necessary
alteration in the index within fourteen days of the date on which any
alteration is made in the register of debentureholders. The index shall
contain a sufficient indication to enable the entries relating to a particular
debentureholder to be readily found.[Sec.152(2)]

Protection of Interests of
Debentureholders
The Companies(Amendment) Act, 2000 seeks to protect
the interests of debentureholders by inserting three new
sections 117A, 117B, 117C in the Companies Act, 1956.
These new Sections deals with the format of debenture
trust deed, appointment of debenture trustees, duties
and powers of debenture trustees and liability of the
company to create security and Debenture Redemption
Reserve for the redemption of debentures.

Purchase by Company of its Own

Shares
Buy-back of shares :
Prior to the Companies(Amendment)Act,1999,companies
were not permitted to purchase their own shares unless
the consequent reduction of capital was effected and
sanctioned in pursuance of Sections 100 to 104 or
section 402(Sec. 77).Section 77-A,introduced by the
Companies(Amendment)Act,1999 permits a company to
purchase its own shares under a buy-back scheme out of
(1) its free reserves; or (2) securities premium account;
or (3) the proceeds of an earlier issue .

This is subject to the following conditions:

1.The buy-back is authorized by the articles of the company
2.A special resolution is passed in general meeting of the company
authorizing the buy-back
3.The amount in the buy-back shall not exceed twenty five percent
of the total paid-up capital and free reserves of the company
4.The ratio of the debt owed by the company is not more than
twice the capital and its free reserves after such buy-back
5.All the shares to be bought-back are fully paid-up
6.The buy back of shares listed on any recognized stock exchange
should be in accordance with the regulation made by SEBI

Contd.
7.Every buy-back shall be completed within twelve months from the
date of the special resolution
8.A declaration of solvency shall be filed by the company with the
Register and SEBI
9.The shares bought-back shall be extinguished and destroyed
physically within seven days of the last date of completion of buyback
10.Where a company buys-back it shares , it shall not make further
issue of the same kind(including right issue)within a period of six
months except by way bonus issue
11.The company shall maintain a register containing the particulars
of securities bought-back

Prospectus
After obtaining the certificate of incorporation the
promoters will take steps to raise the necessary capital
fir the company.
Basic objective of issuing of a prospectus is to arose a
public interest in the proposed company and induce the
general public to buy its shares and debentures.
Section 2(36) defines prospectus as any document
described or issued as prospectus and includes any
notice, circular, advertisement and other documents
inviting deposits from public.

Rules regarding issue of

prospectus
Dating of prospectus : A prospectus issued by a
company should be dated and the date should be taken
as the date of publication of the prospectus.
Registration of prospectus: No prospectus shall be
issued unless a copy of such prospectus has been
delivered to the registrar for registration.
Experts consent: The prospectus shall not include any
statement made by an expert, if he is connected with
the formation of management of the company issuing
the prospectus.

Matters to be specified
Name and address of the registered office of the
company.
Promoters and their background.
Name, address and occupation of managing director.
History and objective of the business of the company.
Names of stock exchange where application has been
made for listing of present issue.

Raising of Capital-Issue of
shares and debentures
Issue Price
Issue at Par
The issue price is same as the PAR, NOMINAL or FACE value of the shares
and debentures.

Issue at a Premium
The issue price may be HIGHER than the par value of the shares and debentures.
The difference between the issue price and the par value of the shares or
debentures is named as SHARE PREMIUM

Issue at a Discount
The issue price may be LOWER than the par value of the shares and debentures.
The difference between the issue price and the part value of the shares or
debentures is named as SHARE DISCOUNT