A share is the interest of a shareholder in a company. The capital of a company is divided into certain indivisible units of a fixed amount. ‘Share’ means share in the share capital of a company. A share is evidenced by a share certificate. A share certificate is issued by a company under its common seal. Each share in a company having share capital is distinguished by its appropriate number.
Types of shares:
Preference shares
Equity shares
Preference shares: Preference shares are those which have 2 characteristics:
They have a preferential right to be paid dividend during the lifetime of the company
They have a preferential right to the return of capital when the company goes into liquidation
Equity shares: Equity shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Equity shareholders are the last to be paid if the company is wound up.
Application and allotment of shares:
An application for shares is an offer by a prospective shareholder of a company to take shares. ‘Allotment’ is the acceptance by the company of that offer. Allotment results in a binding contract between the company and the applicant. The following provisions of the Act are applicable to ‘application’ for, and allotment of, shares:
Minimum subscription: No allotment shall be made of any share capital of a company offered to the public for subscription unless-
The amount stated in the prospectus as the minimum amount has been subscribed
The sum payable on application for such amount has been paid to and received by the company
Application money: The amount payable on application on each share shall not be less than 5 per cent of the nominal amount of the share. All moneys received from applicants for shares shall be deposited and kept deposited in a scheduled Bank-
Until the certificate to commence business is obtained
Until the entire amount payable on applications for shares in respect of the minimum of
90 per cent subscription has been received by the company.
If any such money is not repaid within 130 days after the issue of the prospectus, the directors of the company shall be jointly repay it with interest at the rate of 6 per annum
Opening of the subscription list:
Allotment can be made only after the beginning of the 5th day from the date of the issue of the prospectus or on such later day as may be specified in the prospectus. This beginning of the 5th day or the later day is known as ‘the opening of the subscription list’.
Shares and debentures to be listed:
Every company, intending to offer shares or debentures to the public for subscription shall make an application to more recognized stock exchanges permission for the listing of its shares or debentures.
Return as to allotments within 30 days of allotment of shares by a company, the company shall file with the Registrar a statement known as ‘return as to allotments’.
Share certificate:
Every person whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares. 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 of the holder of the shares, the share certificate shall be signed by at least 2 directors and the secretary
Limitation of time for issue of share certificates:
The company shall deliver share certificates-
Within 3 months of the allotment of shares
Within 2 month after the application for registration of the transfer of any such shares.
Object of share certificate:
A share certificate under the seal of a company is prima facie evidence of the title of the member to the specified in the certificate.
Lost or defaced certificate: A certificate may be renewed or a duplicate of a certificate may be issued if such certificate-
Is proved to have been lost or destroyed
Having been defaced or torn is surrendered to the company
We already have discussed about article of association. Now, you can read about shares in this chapter.
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