Shares and Capital Structures

The requirement of minimum share capital has been withdrawn in the Companies (Amendment) Act, 2015. Hence, a company can carry on business activities with any amount of share capital from inception.

Classification of Share Capital³

The share capital of a company limited by shares can be classified into equity and preference. Preference share capital is that part of the issued share capital of a company limited by shares, which gives the concerned shareholder preference rights in respect of payment of dividend and repayment in case of winding up. Equity share capital means all share capital that is not preference share capital. Preference share capital can be:

• Redeemable or irredeemable

  Redeemable preference shares can be redeemed on or after a period fixed for redemption, under the terms of issue or after giving proper notice of redemption to preference shareholders.

  The Companies Act, 2013, however, imposes certain restrictions for the redemption of preference shares. Irredeemable preference shares are those shares, which cannot be redeemed during the lifetime of a company.

  As per the provisions of the Companies Act, 2013, a company limited by shares cannot issue irredeemable preference shares. Furthermore, except in the case of infrastructure projects, only preference shares that are liable to be redeemed within a period not exceeding 20 years from the date of issue can be issued.

• Convertible or non-convertible

  Preference shares that are convertible into equity shares are convertible preference shares, and the ones that are not convertible into equity shares are non-convertible preference shares.

Shares or debentures or any other interest of any member in a company shall be movable property, transferable in a manner provided by the Articles of the company. A company may, if so, authorized by its Articles, pay dividends in proportion to the amount paid upon each share.

• 3.Section 43 of the Companies Act, 2013, Ministry of Corporate Affairs, http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf, accessed on 16 July 2023