Kinds of share capital:-
Section 43 of the Companies Act, 2013 provides the kinds of share capital. According to the provision the share capital of a company limited by shares shall be of two kinds, namely:—
(1) Equity share capital —
(1) with voting rights; or
(2) with diuerential rights as to dividend, voting or otherwise in accordance with prescribed rules;
Example:
It is to be noted that, Tata Motors in 2008 introduced equity shares with diuerential voting rights called ‘A’ equity shares in its rights issue. In the issue, every 10 ‘A’ equity shares carried only one voting right but would get 5 percentage points more dividend than that declared on each of the ordinary shares. Since ‘A’ equity share did not carry the similar voting rights, it was being traded at discount to other common shares having full voting. Other companies which have issued equity shares with diuerential voting rights (popularly called DVRs) are Future Retail, Jain Irrigation among others.
(1) Equity share capital —
(1) with voting rights; or
(2) with diuerential rights as to dividend, voting or otherwise in accordance with prescribed rules;
Example:
It is to be noted that, Tata Motors in 2008 introduced equity shares with diuerential voting rights called ‘A’ equity shares in its rights issue. In the issue, every 10 ‘A’ equity shares carried only one voting right but would get 5 percentage points more dividend than that declared on each of the ordinary shares. Since ‘A’ equity share did not carry the similar voting rights, it was being traded at discount to other common shares having full voting. Other companies which have issued equity shares with diuerential voting rights (popularly called DVRs) are Future Retail, Jain Irrigation among others.
(ii) Preference share capital:
However, this Act shall not auect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act.
According to explanation to section 43:
1. ‘‘Equity share capital’’, with reference to any company limited by shares, means all share capital which is not preference share capital;
2. ‘‘Preference share capital’’, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—
(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and
(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;
Capital shall be deemed to be preference capital, despite that it is entitled to either or both of the following rights, namely:—
(a) that in respect of dividends, in addition to the preferential rights to the amounts specified as above, it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid;
(a) that in respect of capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified above, it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.
Exception:
In case of private company - Section 43 shall not apply where memorandum or articles of association of the private company so provides.
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