Meaning of a Share and Kinds of Share Capital

The previous chapter studied shares as one of the sources from which a company raises owned capital. This chapter turns to the other half of the picture that the Maharashtra HSC Secretarial Practice syllabus is really built around: not what a share is, but how a company actually goes about issuing one — the methods it may lawfully use, the procedure it must follow, the terms on which shares can be offered, and the part a Company Secretary plays in making sure the whole exercise is legally sound from start to finish.

Section 2(84) of the Companies Act, 2013 defines a share to mean a share in the share capital of a company, and includes stock. It is the smallest unit into which a company's total share capital is divided, each unit carrying a face value stated in the capital clause of the company's Memorandum of Association, and a person to whom one or more such units are allotted becomes a shareholder, or member, of the company. Section 43 permits a company limited by shares to issue only two kinds of share capital: equity share capital, carrying no preferential right to dividend or to repayment of capital, whose holders are the company's residual claimants and real controllers; and preference share capital, carrying a preferential right to a fixed dividend and to priority repayment of capital on winding up, but ordinarily no voting right. Issuing shares is the general term this chapter uses for the whole legal and procedural exercise by which a company invites, and then actually allots, shares of either kind to applicants in exchange for money — and it is exactly this exercise, in its several different forms, that occupies the rest of the chapter.