According to Section 66 of the Companies Act, there can be only two types of capital issued after this Act and a company with limited liability by shares created after this Act can issue only two types of shares.
(A) Equity share:- According to section 85 (2) of the company’s law, equity or ordinary shares are called those shares which do not get preference like preference shares.
Characteristics of Equity Shares Equity shares have the following characteristics:
1. Dividends on equity shares are paid after paying dividends at a predetermined rate to the preference shareholders. In other words, equity shares mean those shares in which the holder.
(i) does not have a preference in the payment of dividends and ,
(ii) does not have a preference for the repayment of capital at the time of winding up of the company.
2 . The dividend on equity shares is declared in the annual general meeting of the company in accordance with the recommendations of the directors.
3. The owners of these shares have the right to receive notices of the meetings of the company, attend them and vote.
4. The rate of dividend on equity shares is not fixed in advance.
5. Redemption of equity shares is not possible during the lifetime of the company, the return of capital to its holders can be done at the time of winding up of the company.
6. The return of capital to the holders of these shares is made after the return of capital to the preference shareholders.
7. Equity shareholders are the real owners of the company.
Rights attached to equity shares :- Payment of dividend and return of capital on equity shares is possible only after payment of preference shareholders and return of capital. The holders of equity shares have the following rights:-
1. Right to receive dividend. The holders of equity shares, after paying dividend on preference shares, receive the remaining profits as well as declared in the annual general meeting of the company. Has the right to .
2. Right to get information of meetings Equity shareholders have the right to get information about various meetings of the company.
3. Right to be present and vote in the meeting Equality shareholders can attend the meetings of the company and can vote on various resolutions.
4. Right to demand counting of votes- Equality shareholders can demand voting on various motions presented in the meetings of the company after completing the statutory formalities PIPP.
5. Right to Transfer Under the Articles of Association, equity shareholders of a public company have the right to freely transfer their shares.
6. Rights received by the members Equality Shareholders also get various rights received by the members under the Companies Act.
Liabilities attached to equity shares – In addition to the above rights, the equity shareholders also have the following obligations:-
(i) . To pay the call amount on demand by the company in a stipulated time.
(ii) . Liability as a payer for the balance amount payable on the shares in case of winding up of the company.
(B) Preference Shares:- Preference shares mean those shares which have a preference in respect of receiving dividend and repayment of capital. In other words, preference shareholders have the right to receive dividend before other shareholders. Preference to repayment of capital means that in case of winding up of the company After paying the creditors, out of the balance money, the preference shareholders are first returned an amount equal to the face value of their shares. If some money remains after paying the preference shareholders’ capital, it is distributed among the common shareholders of the company.
Characteristics of Preference Shares :-
1. The holders of these shares have a preference in payment of dividend,
2. the rate of dividend to be paid on these shares is pre-determined.
3. The redemption of these shares can be done during the life of the company as well as provided in the Articles of Association of the company.
Rights attached to preference shares – Preference shareholders have the following rights:-
1. Preference to receive dividend Preference shareholders have the right to receive dividend out of the profits of the company. In other words, dividend is paid to the holders of these shares on priority basis.
2. Receipt of dividend at a fixed rate – Before paying dividend to the equity shareholders, a fixed rate of dividend will be given on these shares. There is also the privilege of accumulation of arrears under the Articles of Association in case of shortfall of profits at times.
3. Priority in return of capital In case of dissolution of the company, capital is returned to these shareholders first while returning the capital to the shareholders. The capital is returned to the equity shareholders only after the balance is saved. –
4. The voting rights shareholders have the right to vote on all those matters which affect their interests.
5. Changes in Equity Shares Subject to the Articles, these shareholders may also be given the right to convert their shares into equity shares within a specified period.
6. Redemption The company may liquidate the preference shares if there is a provision in the Articles of Association. It is to be noted that only preference shares are redeemable, equity shares cannot be redeemed.
Liabilities Attached to Preference Shares,
1. Payment of the solicitation amount on demand by the company in a stipulated time.
2. Liability as payer for the amount payable on the shares in case of winding up of the company.