BANGALORE UNIVERSITY

University Law College and Department of Studies in Law

Jnana Bharathi Campus
Bangalore-560 056

COMPANY LAW
Synopsis on the topic:

‘Shares and its Types’

Submitted To:

Smt. Bhavya N
Guest Faculty in Company Law
University Law College and Department of Studies in Law
Jnana Bharathi Campus
Bangalore-560 056

Submitted By:

Name: Navodita K M
Register Number: 20LUL12035
th
7 Semester 5 Year B.A, LL.B (Hons.)
 Company Law: Synopsis

Shares and its Types

Introduction:

Shares are the instruments through which ownership in a company is divided. This division enables
businesses to raise capital, distribute profits, and align the interests of investors and management.
They have a history as rich and varied as the evolution of commerce itself. From the earliest joint-
stock companies of the 17th century to the modern multinational conglomerates, shares have been
a fundamental concept in the corporate landscape.

The Companies Act, 2013, represents a significant milestone in the regulation of shares and
corporate governance in India. This comprehensive piece of legislation provides the legal
framework governing the issuance, transfer, and management of shares in Indian companies. Its
provisions not only safeguard the interests of shareholders but also foster an environment
conducive to business growth and investor confidence.

Meaning of Shares:

A share is a unit of ownership in a company. When an individual or entity holds shares in a

company, they hold a portion of that company's ownership. These shares represent a claim on the
company's assets and earnings.

Shareholders, as the owners of these shares, have a stake in the company's success and,
correspondingly, a share in its profits. They also have certain rights and responsibilities tied to
their ownership.

Ownership and Liability:

The concept of ownership of shares is closely tied to the concept of limited liability. In a limited
liability company, shareholders are not personally responsible for the company's debts or
obligations.
They are liable only up to the amount they have invested in the company, which is often the face
value of their shares. This principle of limited liability is a fundamental aspect of the modern
corporate structure and provides a level of risk protection for investors.

One of the primary purposes of shares is to raise capital for companies. When a company issues
shares to the public or private investors, it receives funds that can be used for various purposes,
such as expansion, research and development, debt repayment, or working capital. Share issuance
is a common method for businesses to secure the necessary financial resources to achieve their
goals and grow.

Issuance and Transfer of Shares

In this section, we will discuss the process of issuing and transferring shares within a company,
highlighting the legal and procedural aspects. Key points to be covered include:

Issuance of Shares: Companies issue shares to raise capital, and the Companies Act, 2013 outlines
the rules and procedures for doing so. This involves determining the type of shares to issue, the
offer to the public, and compliance with regulatory requirements.

Transfer of Shares: Shareholders often have the right to transfer their shares. The Act regulates
this process, involving the sale or transfer of shares between existing shareholders or to external
parties. The share transfer process typically requires the approval of the board and adherence to
specific procedures.

Share Register: A critical element in share management is maintaining an up-to-date share

register. This register records all share transactions, including issuances and transfers, and is
instrumental in establishing ownership and rights.

Types of Shares:

Under the Companies Act, 2013, various types of shares can be issued by companies. In this
section, we will delve into these types of shares, their characteristics, rights, privileges, and how
they play a crucial role in the corporate structure. The two most common types of shares are Equity
Shares and Preference Shares, each with its distinct features.
Equity Shares:

Equity shares, also known as ordinary shares, represent the most common form of ownership in a
company. These shares confer ownership rights to the shareholders and entitle them to a share of
the company's profits in the form of dividends. Equity shareholders also have the right to
participate in the company's decision-making processes, typically through voting rights at general
meetings.

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

 Issued Share Capital
 Subscribed Share
 Paid-Up Capital

Classification of Equity Shares based on Definition:

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

 Bonus Shares
 Rights Shares
 Sweat Equity Shares
 Voting and Non-Voting Shares

Classification of Equity Shares based on Returns:

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

 Dividend Shares
 Growth Shares
 Value Shares
Preference Shares:

Preference shares, as the name suggests, come with certain preferences over equity shares. These
preferences typically relate to dividend payments and return of capital in the event of liquidation.
Preference shareholders receive fixed dividends before equity shareholders and often have no or
limited voting rights.

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

 Participating/Non-Participating Preference Share
 Convertible/Non-Convertible Preference Shares
 Redeemable/Irredeemable Preference Share

Conclusion:

Shares represent more than financial instruments; they symbolize ownership and shared success.
Equity shares offer participation and voting rights, while preference shares provide stability with
guaranteed dividends and asset claims in liquidation. The Companies Act, 2013, establishes the
foundation for shareholder rights and obligations, maintaining a delicate balance in corporate
governance. Recent amendments adapt the legal framework to meet evolving business needs,
enhancing transparency and fairness.