Shares - Types of Shares - Share Capital - Bonus Issue - Right Issue - ESOP

CONCEPT OF CAPITAL AND FINANCING OF
COMPANIES
MR.N.DEVARAM
ASSISTANT PROFESSOR
SRCAS

CAPITAL: MEANING
Capital is the total amount of money a company
raises by issuing shares to investors, representing
their ownership stake. It's a core component of a
company's financial structure and can be broadly
categorized into two main types: equity share
capital and preference share capital.

In company law, share capital refers to the total value of shares
issued by a company. Share capital is a crucial element of a
company's financial structure, and it represents the ownership stake
held by shareholders in the company. There are different kinds of
share capital, each with its own characteristics. Here are the main
types:
SHARE CAPITAL: MEANING

1. Authorized or Registered Share Capital:
•Maximum Limit: This represents the maximum amount of capital that a company is allowed
to issue, as specified in its articles of association.
•Can be Increased: The company may increase its authorized share capital through
shareholder approval.
2. Issued Share Capital:
•Shares Actually Issued: This is the portion of authorized share capital that the company has
actually issued to shareholders.
•Can be Less than Authorized: The issued share capital can be less than the authorized
share capital.

3. Subscribed Share Capital:
Shares Sold to Investors: Subscribed capital is the portion of issued share capital that has
been sold to investors.
Can be Less than Issued: Not all issued shares may be subscribed; some may be retained
by the company or not taken up by investors.
4. Paid-up Share Capital:
Amount Paid by Shareholders: This represents the portion of subscribed capital that
shareholders have actually paid for.
Can be Less than Subscribed: Shareholders may pay for their shares in installments,
and
the paid-up capital may be less than the subscribed capital.

5.UNPAID SHARE CAPITAL:
Amount Yet to be Paid: This is the portion of subscribed capital that shareholders have
committed to pay but have not yet paid.
6. "Called-up share capital" refers to the portion of a company's share capital that has been
demanded by the company and is due to be paid by the shareholders. It represents the
amount of money that shareholders have agreed to pay for the shares they have subscribed
to but may not have paid in full at a given point in time.

7. "UNCALLED SHARE CAPITAL" REFERS TO THE PORTION OF A
COMPANY'S SHARE CAPITAL THAT HAS NOT YET BEEN REQUESTED
OR DEMANDED FROM SHAREHOLDERS. IT REPRESENTS THE
POTENTIAL FUTURE LIABILITY THAT SHAREHOLDERS MAY NEED TO
FULFILL IF THE COMPANY DECIDES TO CALL FOR ADDITIONAL
FUNDS.

SHARE MEANING:
In simple words, a share is a unit of ownership in a company. When you own a
share or shares of a company, you are a shareholder, and you own a part of
that company. Shares are also known as stocks or equity.

MEANING & DEFINITION
• A 'share' is a part of a company's capital. If a
company has Rs 400,000 capital divided into 4000
parts of Rs 100 each, each part is a share.
• Section 2(48) of the Companies Act, 2013 defines
a 'share' as a portion of a company's share capital.

CHARACTERISTICS OF SHARES
• Movable Property: Shares represent movable property and can be
transferred between members.
• Share Certificate: Each shareholder receives a certificate under the
company seal confirming ownership and number of shares held.
• Registration of Shares: The company keeps a register recording each
shareholder's name, address, number of shares, and amount paid.
• Rights and Interests: Shareholders have specific rights, interests, and
liabilities within the company.

EQUITY SHARES
• Equity shares, as per Section 43 of the Companies Act
2013, are all shares except preference shares.
• They form the main part of a company's share capital.
• Dividends and capital returns on equity shares come
after preference shares are paid.
• Equity shareholders can vote and manage the
company. They are the true owners.

EQUITY SHARES
• These shares do not guarantee a fixed dividend rate;
instead, dividends depend on the company’s
profitability and board decisions.
• In the event of company liquidation, equity shareholders are
paid back only after all preference shareholders have been fully
compensated.
• Equity shares are non-redeemable, meaning they cannot be
bought back by the company at a predetermined time.

PREFERENCE SHARES
• Preference shares give holders priority for fixed dividends and capital
return if the company closes.
• Cumulative (dividends accumulate if unpaid) / Non-Cumulative
(no accumulation)
• Convertible (can convert to common shares) / Non-Convertible
• Redeemable (can be bought back by company) / Irredeemable
• Participating (share extra profits) / Non-Participating

PREFERENCE SHARES
• Cumulative Preference Shares: These shares
accumulate dividends at a predetermined rate, which
continue to build up until the full amount is paid to the
shareholders.
• Non-Cumulative Preference Shares: Dividends on these
shares do not accumulate; if a dividend is missed,
shareholders do not have the right to claim it later.

PREFERENCE SHARES
• Participating Preference Shares: Holders of these shares can
receive additional dividends from the company’s surplus profits
during its operation, as well as a share of remaining assets if
the company is liquidated.
• Non-Participating Preference Shares: These shares provide a
fixed dividend but do not grant any rights to partake in extra
profits beyond the fixed rate.

PREFERENCE SHARES
• Convertible Preference Shares: Holders can choose to transform
these shares into equity shares according to the specific conditions
outlined at issuance.
• Non-Convertible Preference Shares: These shares do not grant
the holder any option to convert them into equity shares.
• Redeemable Preference Shares: The company is obligated to buy
back these shares after a predetermined period, as specified in the
terms of issue.
• Irredeemable Preference Shares: These shares remain
outstanding for the lifetime of the company and are not subject to
repurchase.

PREFERENCE SHARES
•Cumulative preference shares: Entitled to dividends from previous years if unpaid.
•Non-Cumulative preference shares: No rights to unpaid dividends from previous years.
•Convertible preference shares: Can be converted into equity shares.
•Non-Convertible preference shares: Cannot be converted into equity shares.
•Redeemable preference shares: Capital can be repaid after a set period.
•Irredeemable preference shares: Cannot be redeemed.
•Participating preference shares: Can share in additional company profits.
•Non-Participating preference shares: No rights to additional company profits.

STOCK
• Stock refers to the total collection of fully paid shares of a company,
consolidated and divided into various portions. It always represents fully
paid-up shares.
• Under Subscription: This occurs when the total shares applied for by
investors fall short of the number of shares the company has issued. In such
cases, all applicants typically receive the shares they requested.
• Over Subscription: This situation arises when the demand for shares
exceeds the number of shares available to the public, meaning more
applications are received than shares offered.

• Pro-rata Allotment: Shares can be distributed proportionally
among all applicants based on the number of shares they
applied for. Sometimes, applications may be partially or fully
rejected based on specific criteria.
• Calls-in-Arrears: If shareholders delay or fail to pay the
amounts due on their allotted shares during calls, these
unpaid sums are referred to as calls-in-arrears.

• Calls-in-Advance: When a company receives payments from
shareholders ahead of scheduled calls, these early payments
are known as calls-in-advance.
• Forfeiture of Shares: This is the process where a shareholder’s
membership is terminated and their shares are taken back by
the company due to non-payment of allotment money or calls.

• At Par Value: This means shares are sold at their original face or
nominal value, which is predetermined when the company is
registered.
• At a Premium: Shares are issued above their par value, creating
a share premium. For example,
• if A Ltd. issues 10,000 shares with a face value of Rs.10 each but
sells them at Rs.12, the extra Rs.2 per share is the premium.
• The payment might be structured as Rs.4 on application, Rs.5 on
allotment (including the premium), and Rs.3 on the final call.

• Shares can be issued under two main categories, depending on how the
payment is received:
1.Shares issued for immediate and full payment:
1. a) Payment in non-cash assets
2. b) Payment in cash

• Shares issued where payment is made in installments, known as calls:
• a) Payment in non-cash assets: i. Issuing shares to acquire assets:
• Debit Assets Account
• Credit Share Capital Account ii. Issuing shares to business vendors:
• For asset purchase:
• Debit the Assets Account
• Credit the Vendors Account
• For share issuance to vendors:
• Debit the Vendors Account
• Credit the Share Capital Account

• b) Cash Consideration: When companies issue shares, they often receive the
entire payment upfront in a single transaction. This payment can be made at
the face value (par), above it (premium).

• Accounting Entries:
1.Shares issued at par value:
1. Debit Bank Account
2. Credit Share Capital Account
2.Shares issued at a premium:
1. Debit Bank Account
2. Credit Share Capital Account
3. Credit Securities Premium Account

• Shares issued with payments in instalments called calls: Application,
Allotment, Calls.
• Received
• Transferred
• Rejected
• Adjusted to Allotment

• Received
• Bank Dr.
To Share Application/ALLOTMENT/CALL
• Transferred
• Share Application/ALLOTMENT/CALL Dr.
To Share Capital

• Rejected
• Share Application/ALLOTMENT/CALL Dr.
To Bank
• Adjusted to Allotment
• Share Application Dr.
To Share Allotment

FORFEITURE OF SHARES
• Forfeiture is a legal process through which an individual loses all rights or
claims to a particular property.
• This property is typically seized from someone accused of wrongdoing, such
as committing a crime or violating a contract.
• Essentially, forfeiture means the loss or surrender of ownership or rights due
to illegal acts or breaches of agreement.

• If shareholders don’t pay a valid call money within the
deadline, the company can either take legal action to
get the money after giving some extra time or cancel
the shares for the unpaid amount.
• But the company can only cancel shares if the rules
clearly allow the Directors to do so.

• When shares issued at par are forfeited the accounting treatment will be
as follows:
• (i) Debit Share Capital Account with amount called up (whether received
or not) per share up to the time of forfeiture.
• (ii) Credit Share Forfeited A/c. with the amount received up to the time of
forfeiture.
• (iii) Credit ‘Unpaid Calls A/c’ with the amount due on forfeited shares.
This cancels the effect of debit to such calls which take place when the
amount is made due

• The journal entry is :
• Share capital A/c Dr. (Amount called up)
To share forfeited A/c (Amount paid)
To unpaid calls A/c (Amount called but not paid)
(i) Amount called up = No. of shares × called up per share
(ii) Amount paid = No. of shares × Amount paid per share
(iii) Amount called but not paid = No. of shares × Amount called but not
paid per share

Shares - Types of Shares - Share Capital - Bonus Issue - Right Issue - ESOP

RIGHTS ISSUE MEANING
• :A rights issue lets existing shareholders buy new shares proportional to
their current holdings.
• Shareholders have a set time to buy these shares.
• Companies use rights issues to raise funds for growth, acquisitions, or debt
repayment.

RIGHTS ISSUE MEANING
• Section 81(1) of the Companies Act, 1956, governs rights issues.
• After two years from company formation or
• one year from the first share allotment (whichever is earlier), the Board can
increase subscribed capital by issuing more shares.
• Section 62 of the Companies Act, 2013 covers "further issue of capital" and
gives shareholders the right to buy new shares first.

RIGHTS ISSUE- NATURE
1.Rights shares are issued based on the company's capital needs, e.g., 1 new
share for every 5 shares owned.
2.The subscription price is the cost per new share, such as $10 per share.
3.Rights can be traded, meaning you can sell your rights to another investor.
4.Rights must be used within about 30 days, or they expire and become
worthless.

ADVANTAGES OF A RIGHTS ISSUE
• Greater influence retained by current shareholders
• Protects existing shareholders from dilution
• Eliminates expenses associated with public share offerings
• Enhances the company’s reputation and credibility
• Facilitates effective capital accumulation
• Employs a more strategic and methodical approach

DISADVANTAGES OF RIGHTS ISSUE
1.Earnings per share drop.
2.Market price falls.
3.Small shareholders must act quickly.

LEGAL ASPECTS OF RIGHTS ISSUE
1.Under the Companies Act, all publicly listed firms must notify the stock
exchange in advance about the board meeting date where the rights issue
will be discussed. This notification should include details on the meeting's
decisions regarding the issue's proportion and pricing.
2.When a company opts to issue rights, it is obligated to distribute a detailed
circular to all current shareholders, providing them with essential
information about the rights issue.

3.The offer letter is sent for approval to the stock exchange and SEBI.
4.Shareholders have 1-2 months to exercise their rights.
5.The record date is set during the board meeting when the rights issue is
considered.
6.The company reserves 5% of the rights issue for employees.

7.The company must allot rights shares within six weeks after the acceptance
deadline and submit enlistment documents.
8.It issues share certificates for rights issues, showing dividend rights.
9.The company pays listing fees for rights-based securities to be traded on the
stock exchange.

PROCEDURE FOR A RIGHTS ISSUE UNDER THE
COMPANIES ACT 2013
1.Notify each Director in writing at least 7 days before the Board meeting. [Sec
173(3)]
2.Hold the Board meeting.
3.Pass a resolution approving the "Letter of Offer," which must include the
right of renunciation.

COMPANIES ACT 2013
4.Send offer letters to shareholders by registered post, speed post, or email at
least 3 days before the issue opens.
5.Collect acceptances, renunciations, and rejections from shareholders.
6.Hold a Board Meeting.

COMPANIES ACT 2013
7.Pass board resolution to approve share allotment.
8.File E-form MGT-14 within 30 days of share issue.
9.File return of allotment in E-Form PAS-3 within 30 days.
10.Listed companies must follow SEBI (ICDR) 2009 Chapter IV and Listing
Agreement rules.

BONUS SHARE
Bonus shares are free extra shares given to
current shareholders based on their existing
shares.
It come from the company's profits that aren't
paid as dividends but converted into shares.

BONUS SHARE
• Bonus shares can be issued from:
• Profit and Loss Account balance
• General or other profit-based reserves
• Realized capital profits and reserves
• Securities Premium Account
• Capital Redemption Reserve Account

BONUS SHARE
• Option 1: Issue free fully paid bonus shares by
capitalizing profits.
• Option 2: Convert partly paid shares to fully paid
without cash, using profits.

BONUS SHARE
1.Bonus shares need approval in the company's AOA or a
shareholder resolution.
2.The board must recommend, and shareholders approve, the
bonus in a general meeting.
3.Bonuses come from reserves made of real profits or cash-
collected share premium.

BONUS SHARE
4.Reserves from fixed asset revaluation aren't used for
bonus shares.
5.Bonus shares require fully paid-up partly paid shares.
6.Bonus shares can be issued only twice every 5 years.
7.No bonus shares within 12 months of any public or
rights issue.

BONUS SHARE - ADVANTAGES
• Fixes undercapitalization.
• Boosts share marketability.
• Maintains company liquidity.
• Raises shareholder stakes and investor trust.
• Uses retained profits for growth.

BONUS SHARE - DISADVANTAGES
• Higher administration costs.
• EPS and MPS may drop.
• Future dividends might fall.
• Can boost share speculation.
• Capitalization rises without matching earnings.

SWEAT EQUITY SHARES
• Sweat Equity Shares (Section 2(88), Companies
Act, 2013) are shares given to directors or
employees at a discount or non-cash price for
their know-how, intellectual property rights, or
value added.

PROCEDURE FOR ISSUING SWEAT SHARES
1.Hold a board meeting to approve issuing sweat equity
shares and call a general meeting.
2.At the general meeting, pass a special resolution
detailing share number, market price (if listed),
payment terms, and recipient classes
(directors/employees).

• Attach an explanatory statement with the General Meeting
notice.
• File the special resolution using Form MGT-14.
• Hold a Board meeting to issue Sweat Equity shares, then file
Form PAS-3 with ROC.

• Sweat equity shares issued can't exceed 15% of paid-up capital or ₹5
Crores yearly, whichever is higher. Total sweat equity can't surpass
25% of paid-up capital.
• Shares locked for at least 3 years from allotment date, with
lock-in expiry clearly stamped on certificates.
• Shares valued by a registered valuer at a fair price with
justification.

• Sweat equity shares issued can't exceed 15% of paid-up capital or ₹5 Crores
yearly, whichever is higher. Total sweat equity can't surpass 25% of paid-up
capital.
• Shares locked for at least 3 years from allotment date, with lock-
in expiry clearly stamped on certificates.
• Shares valued by a registered valuer at a fair price with
justification.

• A special resolution is needed to issue sweat equity
shares. It lasts 12 months from approval. At least 1
year must pass since business start. Listed companies
must follow SEBI rules.

EMPLOYEE STOCK OPTION SCHEME
• Employee Stock Option Scheme (per Section 2(37),
Companies Act 2013): Options given to directors,
officers, or employees of a company (or its
holding/subsidiary) to buy company shares later at a
set price.

HOW ESOP WORKS:
1.Draft the ESOP plan.
2.Hold a Board Meeting to approve it.
3.Get Shareholders' approval in a general
meeting.
4.Pass a special resolution to finalize the ESOP.

HOW ESOP WORKS:
5.File MGT-14 within 30 days of passing the
special resolution.
6.Vesting and exercising of options.
7.Board meeting to allot shares.
8.Send allotment letters.

1. Total stock options to grant
2. Employee classes identified
3. Appraisal process
4. Vesting requirements and period
5. Maximum vesting period
Disclosure in explanatory
statement

1. Lock-in period, if any.
2. Max options per employee.
3. How the company values options.
4. When vested options can lapse.
Disclosure in explanatory
statement

• Permanent employees, in India or abroad.
• Part-time or full-time company directors.
• Employees of holding, subsidiary, or associate firms.
WHO CAN GET
ESOPS?

• Directors owning over 10% equity.
• Promoter employees.
WHO CANNOT GET
ESOPS?

• Comfortable retirement.
• Increased responsibility to the company.
• Involvement in decision-making.
• Job security and satisfaction.
• Focus on company growth
BENEFITS FOR EMPLOYEES

• ESOP started in India in 1987.
• ESOPs are registered using form SH-6.
• Governed by ICAI's AS 15.
• ESOPs can't be transferred, pledged, or mortgaged.
• Major users: ONGC, ICICI Bank, Tata Technologies, Wipro.
OTHERS

The "allotment of shares" is a process by which a company formally allocates or
assigns shares to individuals or entities who have applied for and been granted
shares during a share issuance or initial public offering (IPO).
This is a crucial step in the issuance of shares and involves the company
determining who will receive the shares and in what quantities.
ALLOTMENT OF SHARES:

Here's an overview of the allotment of shares:
1.Application Process: Before shares are allotted, interested individuals or entities typically
submit applications to purchase shares during a share issuance or IPO. These applications
include details such as the number of shares desired and the amount of money to be paid.
2.Board Approval: The board of directors of the company reviews the applications and
decides on the allotment of shares. They may consider factors such as the total demand for
shares, regulatory requirements, and any specific criteria outlined in the company's policies.

3.Allotment Decision: Based on the board's decision, the company determines the
number of shares to be allotted to each applicant. This process may involve allocating the
available shares proportionally based on the requested amounts or using other criteria.
4.Communication to Applicants: Once the shares are allotted, the company
communicates the allotment details to the successful applicants. This includes information
about the number of allotted shares, the payment instructions, and any relevant terms and
conditions.

5.Payment: Successful applicants are required to make the necessary payment for the
allotted shares within a specified timeframe. This payment is typically made to the company
or through designated financial institutions.
6.Unsuccessful Applicants: Applicants who were not allotted shares receive a refund of
the application money. The company communicates the reasons for non-allotment, which
may include oversubscription or other factors.
7.Listing and Trading: After the successful completion of the allotment process and
the receipt of payments, the company may proceed to list its shares on a stock
exchange, allowing them to be traded among investors.

ALLOTMENT OF SHARES : IMPORTANCE
The allotment of shares is a crucial process in the life of a company, particularly in the context
of raising capital through the issuance of new shares. Here are some key reasons highlighting
the importance of the allotment of shares:
1.Capital Infusion: Allotting shares is a primary method through which a company raises
capital. By issuing new shares, a company can generate funds that can be used for various
purposes such as expansion, research and development, debt repayment, or other business
activities. This capital infusion is vital for the growth and sustenance of the company.

2. Business Expansion: Allotting shares allows a company to finance expansion plans.
Whether it's entering new markets, acquiring other businesses, or investing in technology
and infrastructure, the funds obtained through the allotment of shares can support these
growth initiatives.
3.Shareholder Participation: The allotment of shares enables individuals or institutional
investors to become shareholders in the company. This fosters a sense of ownership and
participation in the company's success. Shareholders, by owning a portion of the company,
also gain certain rights such as voting rights and a share in the profits through dividends.

4. Dilution and Ownership Structure: Allotting shares can lead to dilution of existing
shareholders' ownership in the company. This may impact the control and decision-making
power of existing shareholders. Companies need to carefully manage the balance between
raising capital and maintaining a reasonable ownership structure to ensure the interests of all
stakeholders.
5.Market Perception and Valuation: The allotment of shares can influence the market
perception of a company. If the market believes that the shares are being issued for sound
reasons and at a fair valuation, it can enhance the company's reputation. On the other hand,
poorly managed or perceived allotment processes can have negative implications on the
company's valuation and image.

6. Compliance and Legal Requirements: Allotment of shares must adhere to legal and
regulatory requirements. Proper documentation, disclosure, and compliance with securities
laws are essential. Failing to comply with these regulations can lead to legal issues and
financial penalties.
7.Financial Health and Stability: The allotment of shares contributes to the financial health
and stability of a company. It provides a source of long-term capital that can be used to meet
financial obligations and weather economic downturns.

DEBT SECURITIES:
• Definition: Represent loans made by investors to an issuer (government or corporation).
• Fixed Income:
• Debt securities typically offer a fixed or floating interest rate (coupon) that is paid to the
investor over the life of the security.
• Principal Repayment:
• The issuer is obligated to repay the original amount borrowed (principal) to the investor
at a specified maturity date.

DEBT SECURITIES:
• Maturity:
• Debt securities have a defined maturity date, which is the date when the principal is repaid.
• Negotiability:
• Debt securities can be traded in the financial markets before maturity.
• Risk and Return:
• Debt securities generally offer lower returns than equity securities but are considered less
risky, providing a stable income stream.

TYPES OF DEBT SECURITIES:
• Bonds: Long-term debt securities issued by governments or corporations.
• Notes: Debt securities with a shorter maturity than bonds, typically issued
by corporations.
• Commercial Paper: Short-term debt securities issued by corporations,
usually for a period of less than 270 days.

TYPES OF DEBT SECURITIES:
• Certificates of Deposit (CDs):Time deposits offered by financial
institutions, often with a fixed interest rate and maturity.
• Mortgage-backed Securities: Securities backed by a pool of mortgages.
• Asset-backed Securities: Securities backed by a pool of various types of
assets, such as auto loans or credit card debt.

DERIVATIVE SECURITIES:
• Definition:Their value is derived from an underlying asset (stocks, bonds, commodities,
etc.).
• These can include a wide range of assets like stocks, bonds, currencies, commodities (like
gold or oil), interest rates, and market indices.
• Derivatives are used by investors and institutions to manage risk, speculate on price
movements, and gain exposure to asset classes without directly owning the underlying
assets.

TYPES OF DERIVATIVES
• Futures:
• Standardized contracts traded on exchanges to buy or sell an
asset at a specified price on a future date.
• Forwards:
• Similar to futures, but customized contracts traded over-the-
counter (OTC) between two parties.

TYPES OF DERIVATIVES
• Options:
• Contracts that give the buyer the right, but not the obligation,
to buy or sell an asset at a specific price on or before a certain
date.
• Swaps:
• Agreements between two parties to exchange cash flows based
on different financial instruments or benchmarks.

USES OF DERIVATIVES:
• Hedging: Reducing or offsetting potential losses from price
fluctuations in the underlying asset.
• Speculation:Attempting to profit from predicted price
movements of the underlying asset.
• Arbitrage: Exploiting price differences in different markets to
make a profit.

PRIVATE PLACEMENT
• A private placement is a sale of securities, like stocks or bonds, by a company to a
select group of investors, rather than through a public offering.
• This method allows companies to raise capital from a limited number of investors,
often chosen for their financial sophistication or institutional status. Private
placements offer advantages like speed, flexibility, and potentially lower costs
compared to public offerings, but they also come with limitations, such as a
smaller pool of potential investors.

PRIVATE PLACEMENT
• Spotify: Spotify raised capital through a private placement before its IPO.
• Uber: Uber also used private placements to secure funding.
• Venture Capital: Private placements are a common method of financing for
venture capital firms.

BUYBACK OF SECURITIES
• A buyback of securities, also known as a share repurchase, is when a company buys
back its own shares from the open market or through a tender offer.
• This reduces the number of outstanding shares, potentially increasing the value of
the remaining shares and providing liquidity to shareholders.
• Companies may choose to buy back shares for various reasons, including utilizing
excess cash, increasing the share price

• Shareholder Approval:
• Buybacks exceeding a certain percentage of the company's paid-up capital and free
reserves typically require shareholder approval.
• Debt-Equity Ratio:
• The debt-equity ratio must be maintained within a certain limit after the buyback.

• Extinguishment of Shares:
• In India, shares bought back by a company are typically extinguished and not held as
treasury stock.
• Time Limit:
• Buybacks must be completed within a specified period, typically 12 months, from the
date of the resolution authorizing the buyback.

ALTERATION OF SHARE CAPITAL
• Alteration of share capital means changing a company's capital
setup.
• It's a form of internal reconstruction.
• It can only happen if allowed by the company's articles of
association.

ALTERATION OF SHARE CAPITAL - PROCESS
1.Verify share capital change is allowed in Articles of Association.
2.Send Board meeting notice with agenda 7+ days before.
3.Hold Board meeting.
4.Pass resolution to alter share capital.
5.Get shareholder approval for the resolution.

ALTERATION OF SHARE CAPITAL - PROCESS
1.• Set date, time, and place for Shareholders Meeting.
2.• Director sends meeting notice to Shareholders.
3.• Issue notice at least 21 days before meeting.
4.• Hold the meeting.
5.• Pass resolution with majority approval.
6.• Notify Registrar of Companies within 30 days of resolution.
7.• Late notification fines: ₹10,000/day, up to ₹5 lakh.

ALTERATION OF SHARE CAPITAL - TYPES
• Increase in Share Capital: This involves raising
additional capital by issuing new shares to existing or
new shareholders. It can be done to fund expansion,
pay off debts, or improve the company's financial
health.

• Consolidation of Shares (Reverse Stock Split): This process
combines multiple shares of lower denomination into fewer
shares of higher denomination. For example, ten shares of $1
each might be consolidated into one share of $10. This is often
done to increase the market price per share and improve the
company's image.

• Sub-Division of Shares (Stock Split): This is the opposite of
consolidation, where shares of higher denomination are divided
into a larger number of shares of lower denomination. For
instance, one share of $10 might be split into ten shares of $1
each. This makes shares more affordable and can increase
liquidity.

• Conversion of Shares into Stock: Shares can be
converted into stock, which means the shareholder
holds a stock certificate representing a certain value
rather than a specific number of shares. This often
facilitates easier transfer and trading of shares.

• Cancellation of Shares: This involves reducing the
number of shares by canceling some of them,
which can be done to reduce capital or eliminate
shares that are no longer valid or required.

Shares Stocks
Definition
A share is a financial instrument that
represents the part ownership of a company.
A stock is a financial instrument that
represents part ownership in one or more
organisations.
Denomination
The value of two different shares of a
company can be equal to each other.
The value of two different stocks of a
company may or may not be equal to each
other.
SHARES VS STOCK

Shares Stocks
NominalValue
There is a nominal value that is associated
with shares.
There is no nominal value that is associated
with stocks.
Possibility of Original Issue
There is zero possibility of an original issue
in the case of shares.
There is a possibility of an original issue in
the case of stocks.
SHARES VS STOCK

Shares Stocks
Paid-upValue
The shares of a company are either fully paid
up or partially paid up.
The stocks of a company (or a group of
companies) are always fully paid up.
Scope
Shares have a narrower scope when
compared to stocks.
Stocks have a wider scope when compared
to shares.
SHARES VS STOCK

DUTIES OF CS
• A company secretary (CS) plays a vital role in managing a company's share
capital, ensuring compliance with legal and regulatory requirements, and
maintaining accurate records.
• Their duties include managing share allotments, share certificates, share
transfers, and share capital alterations, as well as ensuring proper
documentation and compliance with relevant laws and regulations.

DUTIES OF CS
• Allotment of Shares:
• The CS is responsible for ensuring the proper allotment of shares, including
verifying applications, preparing allotment lists, and obtaining necessary
approvals.
• Share Certificates:
• The CS ensures the timely and accurate issuance of share certificates,
including affixing the company seal and revenue stamps.

DUTIES OF CS
• Share Transfers:
• The CS handles the registration of share transfers, ensuring compliance with
the company's Articles of Association and relevant regulations.
• Share Capital Alterations:
• The CS assists in processes like increasing authorized share capital, sub-
division, or consolidation of shares, ensuring proper documentation and
filings.

Shares - Types of Shares - Share Capital - Bonus Issue - Right Issue - ESOP

More Related Content

Similar to Shares - Types of Shares - Share Capital - Bonus Issue - Right Issue - ESOP (20)

More from DevaRam6 (10)

Recently uploaded (20)

Shares - Types of Shares - Share Capital - Bonus Issue - Right Issue - ESOP