What Is the Meaning of Share?

A share represents a unit of equity ownership in a company.

Shareholders are entitled to any profits that the company may
earn in the form of dividends. They are also the bearers of any
losses that the company may face. In simple words, if you are a
shareholder of a company, you hold a percentage of ownership
of the issuing company in proportion to the shares you have
bought.

Shares can be further categorized into two types. These are:

 Equity shares
 Preference shares

They vary based on their profitability, voting rights and

treatment in the event of liquidation.

Equity Shares Meaning

These are also known as ordinary shares and comprise the bulk
of the shares being issued by a particular company. Equity
shares are transferable and are traded actively by investors in
stock markets. As an equity shareholder, you are not only
entitled to voting rights on company issues but also have the
right to receive dividends.

These dividends, however, are not fixed. Equity shareholders

also partake in any losses faced by the company, limited to the
amount they had invested. Equity shares can be further
divided based on:

 Share capital
 Definition
 Returns
Classification Of Equity Shares based on Share Capital

Here is a look at the classification of equity shares based on

share capital:

 Authorised Share Capital: Every company, in its

Memorandum of Associations, requires to prescribe the
maximum amount of capital that can be raised by issuing
equity shares. The limit, however, can be increased by
paying additional fees and after the completion of certain
legal procedures.
 Issued Share Capital: This implies the specified portion of
the company’s capital, which has been offered to investors
through the issuance of equity shares. For example, if the
nominal value of one stock is Rs 200 and the company
issues 20,000 equity shares, the issued share capital will be
Rs 40 lakh.
 Subscribed Share Capital: The portion of the issued
capital, which has been subscribed by investors is known
as subscribed share capital.
 Paid-Up Capital: The amount of money paid by investors
for holding the company’s stocks is known as paid-up
capital. As investors pay the entire amount at once,
subscribed and paid-up capital refer to the same amount.

Classification Of Equity Shares based on Definition

Here is a look at the equity share classification based on the

definition:

 Bonus Shares: Bonus share definition implies those

additional stocks which are issued to existing
shareholders free-of-cost, or as a bonus.
 Rights Shares: Right shares meaning is that a company
can provide new shares to its existing shareholders - at a
 particular price and within a specific period - before being
offered for trading in stock markets.
 Sweat Equity Shares: If as an employee of the company,
you have made a significant contribution, the company
can reward you by issuing sweat equity shares.
 Voting And Non-Voting Shares: Although the majority
of shares carry voting rights, the company can make an
exception and issue differential or zero voting rights to
shareholders.

Classification Of Equity Shares based on Returns

Based on returns, here is a look at the types of shares:

 Dividend Shares: A company can choose to pay

dividends in the form of issuing new shares, on a pro-rata
basis.
 Growth Shares: These types of shares are associated with
companies that have extraordinary growth rates. While
such companies might not provide dividends, the value of
their stocks increases rapidly, thereby providing capital
gains to investors.
 Value Shares: These types of shares are traded in stock
markets at prices lower than their intrinsic value.
Investors can expect the prices to appreciate over some
time, thus providing them with a better share price.

Preference Shares
Preferential shareholders receive preference in receiving profits
of a company as compared to ordinary shareholders. Also, in
the event of liquidation of a particular company, the
preferential shareholders are paid off before ordinary
shareholders. Here are the different types of shares in this
category:
  Cumulative And Non-Cumulative Preference Shares: In
the case of cumulative preference shares, if a particular
company doesn’t declare an annual dividend, the benefit
is carried forward to the next financial year. Non-
cumulative preference shares don't provide for receiving
outstanding dividends benefits.
 Participating/Non-Participating Preference
Share: Participating preference shares allow shareholders
to receive surplus profits, after payment of dividends by
the company. This is over and above the receipt of
dividends. Non-participating preference shares carry no
such benefits, apart from the regular receipt of dividends.
 Convertible/Non-Convertible Preference
Shares: Convertible preference shares can be converted
into equity shares, after meeting the requisite stipulations
by the company’s Article of Association (AoA), while non-
convertible preference shares carry no such benefits.
 Redeemable/Irredeemable Preference Share: A company
can repurchase or claim redeemable preference share at a
fixed price and time. These types of shares are sans any
maturity date. Irredeemable preference shares, on the
other hand, have no such conditions.

Meaning of Share Capital:

Share capital is referred to as the capital that is raised by the
company by issuing shares to investors. Share capital comprise
of capital that is generated from funds generated by issuing of
shares for cash or non-cash considerations.
Share capital is of two types namely, equity share capital and
preference share capital.

Types of Share Capital:

 Authorised Capital: Authorised capital is the amount of

the share capital in which a company is allowed to issue
 its Memorandum of Association. The company is not
supposed to raise more than the amount of capital as
mentioned in the Memorandum of Association. It is also
known as Registered or Nominal capital. The authorised
capital can be either decreased or increased as per the
process furnished in the Companies Act. It should be
understood that the company need not issue the complete
authorised capital for public subscription at one time.
Relying upon its necessity, it may circulate share capital
but in any scenario, it should not cross more than the
amount of authorised capital.
 Issued Capital: It is that portion of the authorised capital
which is usually circulated to the public for subscription
comprising the shares assigned to the merchants and the
endorsers to the enterprise’s memorandum. The
authorised capital which is not proffered for public
consent is called as ‘unissued capital’.
 Subscribed Capital: The subscribed capital is referred to
as that part of issued capital that is subscribed by the
company investors. It is the actual amount of capital that
the investors have taken.
 Called up Capital : The amount of share capital that the
shareholders owe and are yet to be paid is known as
called up capital. It is that part of the share capital that the
company calls for payment.

What is the Allotment of Shares?

Allotment of shares refers to the process of creating and issuing

new shares by the company to the new or existing shareholders
in exchange for cash or otherwise to raise more capital.
Typically, a company issues new shares to attract new investors
and to make them a partner in the business. Private companies
can allot new shares only after filling the "Return of Allotment
of Shares". While public companies are free to allot new shares
anytime but they also have to fill the "Return of Allotment of
Shares" transaction within 14 days of allotment.

Reasons for Allotment of Shares

Shares can be allotted for cash or consideration other than cash

due to the following reasons:

o Due to a written or oral contract.

o Due to a provision in the constitution of the company.
o In exchange for payment of dividends to a shareholder.

Features of Shares Allotted

o Increase in Capital
The company can easily raise further capital by allotting the
additional shares.
o Nature of Capital
They do not impose the liability for repayment on the
company because the capital is not debt in nature.

Process of Allotment of Shares

1. Confirm the Shareholdings and Shareholders' ID

Before allotting the shares, the company must have a look at

the current shareholdings, shares that are going to be
introduced, and the final shareholding structure. There are
some details that are required to be collected while allotting the
shares:

o Name of the Allottee

o Father's name of the Allottee
o Full Address with PIN Code
o of Shares to be Allotted
o PAN Card copy of the Allottee
 o Aadhar Card Copy of the Allottee

2. Call and Convene a Board Meeting

The company needs to conduct a board meeting and get the

permission of the Board of Directors regarding the allotment of
shares. After collecting all the information in the first step, the
company will ask for confirmation from the BoD after discussing
the share structure. Detailed minutes of the board meeting are
kept safe. These details are then presented to the company's
house and also displayed to auditors as evidence.

3. Update Company's House with the New Allotment of

Shares (SH01)

Within a month of any allotment, it is necessary to complete and

deliver the statement of capital (SH01) form to Companies
House. A company can easily complete this form on the official
website of the Companies House. This form helps the companies
in updating the new structure of the shares on the Companies
House. There are no details related to the shareholders included
in the form. If any company wants to make any changes or
updates in the form then it can be done in the company's
statement.

4. Issue New Share Certificates

The fourth step in this process is to issue new share certificates

to the shareholders that include their details and the number of
shares that are currently held by the shareholders. The previous
share certificates get automatically canceled once a new share
certificate is issued by the company.
5. Update the Company's Confirmation Statement (CS01) with
the Totals of New Shares

The last step in the process of share allotment is updating the

confirmation statement of the company with the Company's
House so that the new structure of shares can be shown within
the company.

Members of a Company

Meaning and Definition

The Companies Act divides the members into three classes.
According to Sec. 41 of the Companies Act, the three classes of
members are:

1. The persons who have subscribed to the Memorandum of a

company.

2. Every other person who has agreed in writing to become a

member of the company and whose name has been entered in
the Register of Members.

3. Every person holding equity share capital of a company and

whose names are recorded as beneficial owner in the depository
records are considered as members of the concerned company.

From the above, it is clear that all the subscribers to the

Memorandum are deemed to be the members of the company
even though their names do not appear in the Register of
Members. But the Act provides that their names must be entered
in the Register on its registration. As regards the second category
of members, the criteria of membership are-

1. the person must have agreed in writing to become a member,

and
2. his name must have been entered in the Register of Members.
If any one of the conditions is not satisfied, the person shall not
be a member under this Act.

For the third category of members also 2 conditions are to be

fulfilled to become the member of the company such as

i. The person must hold equity shares of the company.

ii. His name must be entered as beneficial owner in the records
of the depository.

A member can be distinguished from a shareholder in the

following circumstances:

1. A registered member of a company having no share capital is

not a shareholder since the company itself has no share capital.

2. A person who holds a share warrant is a shareholder but he is

not a member of the company.
3. The legal representative of a deceased member is only a
shareholder but not a member. To acquire membership, the legal
representative of the deceased member should apply to the
company and get his name registered in the register.

Who can become a member?

As regards to certain special category of persons, the judiciary

has laid down certain principles for acquiring membership in a
company. They are as follows:

1. Minors: A minor, is not a competent person to enter into

a valid contract. As such, he is disqualified to acquire
membership. However, minors may be allotted shares. On
attaining majority, the minor can avoid the contract. But the
minor should repudiate the contract within a reasonable time.
2. Lunatic and Insolvent: A lunatic cannot become a member.
An insolvent, however, can become a member and is entitled to
vote at the meetings of the company. But his shares vest in the
Official Receiver when he is adjudged insolvent.

3. Partnership Firm: A partnership firm may hold shares in a

company in the individual name of partners as joint holders. But
the shares cannot be issued in the name of the partnership firm,
as it is not a legal person in the eye of law.

4. Company: A company, being a legal person, can become the

member of another company in its own name. But a company
can subscribe for the shares of another company only when it is
authorized by Memorandum. Similarly, a subsidiary company
cannot buy the shares of its holding company.

5. Foreigners: Foreign national can be members of companies

registered in India. For that permission of RBI is mandatory.
When he turns an alien enemy, his right as a member will be
suspended.

6. Fictitious Person: A person who takes the shares in the name

of fictitious person becomes liable as a member. Besides, such a
person can be punished for impersonation under section 68-A.

Modes of acquiring membership

As per Sec. 41 of the Companies Act, a person may acquire the

membership of a company

1. by subscribing to the Memorandum before the registration of

the company.

2. by agreeing to become a member

 a. by applying for the shares offered by a company.
b. by becoming a transferee of a share or shares and being
placed on the register of members.
c. by transmission of shares on succession to a deceased or
bankrupt member and the consequent registration in the
register of the company.
d. by holding out shares and by allowing his name to be
retained on the register.

Besides, there is another method of becoming a member of a

company i.e. “Membership by Qualification Shares“. If a
person agrees to become a director of a company, he is deemed
to have accepted to become a member of that company. On his
appointment, certain shares should be allotted to him. The
Companies Act provides that any one who agrees to become a
director of a public company should take at least one share
before his appointment. Such shares are known as qualification
shares.

Rights of the Members

1. Statutory Rights: These are the rights conferred upon the

members by the Companies Act. These rights cannot be taken
away by the Articles of Association or Memorandum of
Association. Some of the important statutory rights are given
below
i. Right to receive notice of meetings, attend, to take part in the
discussion and vote at the meetings.
ii. Right to transfer the shares [in case of public companies].
iii. Right to receive copies of the Annual Accounts of the
company.
iv. Right to inspect the documents of the company such as
register of members, annual returns, etc.
v. Right to participate in appointments of directors and
auditors in the Annual General Meetings.
 vi. Rights to apply to the Government for ordering an
investigation into the affairs of the company.
vii. Right to apply to the Court for winding up of the company.
viii. Right to apply to the National Company Law Tribunal for
relief in case of oppression and mismanagement under Secs.
397 and 398.

2. Documentary Rights: In addition to the statutory rights, there

are certain rights that can be conferred upon the shareholders by
the documents like the Memorandum and the Articles of
Association.

3. Legal Rights: These are the rights, which are given to the
members by the General Law.

Liabilities of Members

 To make shares if he/she is allotted as per the Act.

 To pay call money or pay the due amount of shares.
 To abide by the decision of majority when they act
‘bonafide’.
 To contribute to the Asset of the company in case of
winding up and when the shares are partly paid up.

What is Share Transfer?

The intentional transfer of ownership of the shares between the

transferor (one who transfers) and the transferee (one who
receives) is referred to as a transfer of shares. A public
company’s shares can be freely transferred unless the company
has a good reason to forbid it. A private limited company’s
shares cannot be transferred as easily as a public company.
What is Share Transmission?

When a share transfer takes place because the original holder has
passed away, has become insane, or is insolvent at that time, it is
termed as Share Transmission. The rights to the shares are
granted to the transferee without the execution of a transfer
document, and the transmission is only recorded if the
transferee provides evidence of their claim to the shares. The
shares will be given to the legal representative in the event of the
holder’s death and to the official assignee in the event of
insolvency.

Transfer and Transmission of Shares as per Companies Act,

2013

Transfer of Shares as per the rule of Section 56 of the

Companies Act

It will only take effect if a proper instrument of transfer, in Form

SH-4, as specified in sub-rule 1 of Rule 11 of the Companies
(Share Capital & Debenture) Rules 2014, is executed by or on
behalf of the transferor and the transferee and includes all the
necessary information, including the transferee’s name, address,
and occupation, if any. It must be presented to the company by
one of the parties along with a certificate of securities or a letter
of allocation of securities, as appropriate, within 60 days of the
date of execution.

If the transferor submits an application for the transfer of

partially paid shares, the company notifies the transferee of the
application using Form SH-5 as specified in sub-rule 3 of Rule 11
of the Companies (Share Capital and Debentures) Rules 2014,
and the transferee has two weeks from the date of receipt of the
notice to withdraw any objections.
 Transmission of Shares as per the rule of Section 56 of the
Companies Act

When the application for the transmission of shares and the

necessary documentation is approved, it will be impacted.
Transfer deed execution is not necessary in the case of
transmission of shares. The following documents are necessary
for the transfer of shares.

 Self – attested copy of PAN Card

 Signature of a Successor
 Death Certificate copy
 Probate of Will/Letter of Administration/Court order
 Succession Certificate

Difference Between Share Transfer and Transmission

Transmission of Shares Transfer of Shares

By “transmission of shares,” we The term “transfer of shares”

indicate the legal transfer of describes the freely given title to
ownership of shares. shares by one party to another.

Affected by bankruptcy, demise, A shareholder deliberately

inheritance, or member insanity. transfers shares to other party.

The process is carried out by heir or a The transfer of share is processed

legal receiver of a shares. by transferor and transferee.

Once the transfer is complete, the

Shares’ original obligation (Liability) is
transferor’s obligations (Liability)
still in effect.
are discharged.
 In transmission of shares there is no Stamp duty is payable on the
need to pay a stamp duty. transfer of shares.

In Transmission of shares there is no In contrast, there is a need for

need for an execution of valid transfer execution of valid deed at the time
deed. of share transfer.

There must be adequate

Nothing is given in exchange at the
consideration, at the time of Share
time of Share Transmission.
Transfer.

What Is a Debenture?

A debenture is a type of bond or other debt instrument that is

unsecured by collateral. Since debentures have no collateral
backing, they must rely on the creditworthiness and reputation
of the issuer for support. Both corporations and governments
frequently issue debentures to raise capital or funds.

KEY TAKEAWAYS

 A debenture is a type of debt instrument that is not

backed by any collateral and usually has a term greater
than 10 years.
 Debentures are backed only by the creditworthiness and
reputation of the issuer.
 Both corporations and governments frequently issue
debentures to raise capital or funds.
 Some debentures can convert to equity shares while others
cannot.
Types of Debentures

Registered vs. Bearer

When debts are issued as debentures, they may be registered

to the issuer. In this case, the transfer or trading in these
securities must be organized through a clearing facility that
alerts the issuer to changes in ownership so that they can pay
interest to the correct bondholder. A bearer debenture, in
contrast, is not registered with the issuer. The owner (bearer)
of the debenture is entitled to interest simply by holding the
bond.

Redeemable vs. Irredeemable

Redeemable debentures clearly spell out the exact terms and

date by which the issuer of the bond must repay their debt in
full. Irredeemable (non-redeemable) debentures, on the other
hand, do not hold the issuer liable to repay in full by a certain
date. Because of this, irredeemable debentures are also known
as perpetual debentures.

Convertible vs. Nonconvertible

Convertible debentures are bonds that can convert into equity

shares of the issuing corporation after a specific period.
Convertible debentures are hybrid financial products with the
benefits of both debt and equity.

What is a fixed charge?

A fixed charge is a charge for finance against a tangible,

physical asset such as property, land and machinery. Said
assets will be used as collateral should the business fail to
repay their debts when owed, or fail to agree on suitable
repayment terms.
Examples of fixed charges

The most common examples of fixed charges are:

 Mortgages
 Standard bank loans
 Rentals and Leases
 Rent deposits
 Invoice Factoring

What is a floating charge?

A floating charge is a charge that is held over assets but

‘floats’, meaning that it can change over time as the business
changes and assets move. Certain assets and stock can change
periodically – this includes machinery and plant, for example.

Examples of floating charges

Floating charges can be held over numerous things, including:

 Stock
 Cash
 Debtors
 Inventory
 Furniture, fixtures and fittings
 Plant and machinery

What is the main difference between fixed and floating

charges?

The main differences between fixed and floating charges are as

follows:

 Fixed charges relate to physical, identifiable assets

whereas floating charges are flexible and apply to
business assets as a whole.
  A fixed asset cannot be sold or disposed of without the
lender’s authorisation, whereas floating charges can be
changed until they are ‘crystallised’ as fixed.
 Fixed charges are higher in the hierarchy than floating
charges in cases of business insolvency and creditor
payment.

What Is a Mortgage?

A mortgage is a type of loan used to purchase or maintain a

home, land, or other types of real estate. The borrower agrees
to pay the lender over time, typically in a series of regular
payments that are divided into principal and interest. The
property then serves as collateral to secure the loan.

KEY TAKEAWAYS

 Mortgages are loans that are used to buy homes and other
types of real estate.
 The property itself serves as collateral for the loan.
 Mortgages are available in a variety of types, including
fixed-rate and adjustable-rate.
 The cost of a mortgage will depend on the type of loan,
the term (such as 30 years), and the interest rate that the
lender charges.
 Mortgage rates can vary widely depending on the type of
product and the qualifications of the applicant.