WHAT ARE SHARES AND KINDS OR CLASSES OF SHARES

 WHAT ARE SHARES AND KINDS OR CLASSES OF SHARES

 

Section 43 of the Companies Act, 2013, deals with issuing shares and the different kinds of shares that a company can issue. Here's an overview:

 

1. Shares:

  

   - Shares represent ownership in a company and are issued to investors in exchange for capital investment.

   - Section 43 of the Companies Act, 2013, provides the framework for the issuance and classification of shares by companies.

 

2. Kinds of Shares:

 

   Section 43 of the Companies Act, 2013, recognizes various kinds of shares that a company can issue, including:

 

   - Equity Shares: Equity shares, also known as ordinary shares, are the most common type of shares issued by companies. They represent ownership in the company and entitle shareholders to voting rights and a share in the profits of the company through dividends. Equity shareholders bear the highest risk but also have the potential for higher returns.

  

   - Preference Shares: Preference shares are shares that carry preferential rights over equity shares about payment of dividends and repayment of capital in the event of winding up of the company. Preference shareholders typically have a fixed dividend rate and priority in receiving dividends over equity shareholders. However, they usually do not have voting rights or have limited voting rights.

  

   - Cumulative Preference Shares: Cumulative preference shares are a type of preference shares where unpaid dividends accumulate if the company is unable to pay dividends in any particular year. The accumulated dividends must be paid before any dividends are paid to equity shareholders in subsequent years.

  

   - Non-Cumulative Preference Shares: Non-cumulative preference shares are preference shares where unpaid dividends do not accumulate if the company is unable to pay dividends in any particular year. In such cases, if dividends are not paid in a year, the right to receive dividends lapses, and the company is not obligated to pay them in the future.

  

   - Convertible Preference Shares: Convertible preference shares are preference shares that can be converted into equity shares after a certain period or at the option of the shareholder. This allows preference shareholders to participate in the company's growth and potentially benefit from capital appreciation.

  

   - Non-Convertible Preference Shares: Non-convertible preference shares are preference shares that cannot be converted into equity shares. They remain as preference shares throughout their tenure and do not offer the opportunity for conversion into equity shares.

 

 

 

 

 

 

 

 Redeemable Preference Shares:

  

   - Redeemable preference shares are preference shares that can be redeemed or repaid by the company after a certain period or at a specific date as per the terms of issue.

  

   - The terms of redemption, including the redemption period, redemption price, and mode of redemption, are typically specified in the Articles of Association and the terms of issue of the preference shares.

  

   - Companies may choose to redeem preference shares to reduce their share capital, restructure their capital, or improve their financial flexibility. The redemption of preference shares requires compliance with statutory provisions and approval from shareholders.

 

 Irredeemable Preference Shares:

  

   - Irredeemable preference shares, also known as perpetual preference shares, are preference shares that do not have a fixed redemption date. They remain outstanding indefinitely, and the company is not obligated to redeem them.

  

   - Holders of irredeemable preference shares are entitled to receive dividends periodically, but they do not have the right to demand repayment of their capital from the company.

  

   - Irredeemable preference shares provide the company with a stable source of long-term capital without the obligation to repay the capital to shareholders. However, they may be less attractive to investors seeking liquidity or capital repayment options.

 

 Preference Shares Redeemable at the Option of the Company:

  

   - Some preference shares may be redeemable at the option of the company, allowing the company to decide whether and when to redeem the shares based on its financial condition and strategic objectives.

  

   - The terms of redemption at the option of the company are usually specified in the Articles of Association and the terms of issue of the preference shares.

  

   - Companies may exercise the option to redeem preference shares to manage their capital structure, optimize their financial resources, or respond to changing market conditions.

 

 Preference Shares Redeemable at the Option of the Shareholder:

  

   - In certain cases, preference shares may be redeemable at the option of the shareholder, giving the shareholder the right to demand redemption of their shares from the company after a specified period or at a specific date.

  

   - The terms of redemption at the option of the shareholder are typically outlined in the Articles of Association and the terms of issue of the preference shares.

  

   - Companies issuing preference shares with redemption options for shareholders may attract investors seeking greater flexibility and liquidity options for their investments.

 

These various kinds of shares provide companies with flexibility in structuring their capital, meeting the diverse needs of investors, and raising funds for their operations and growth. The specific rights, privileges, and restrictions attached to each kind of share are determined by the company's Articles of Association and the terms of issue.

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