Shares

Share meaning and Types:

A share is referred to as a unit of ownership which represents an equal proportion of a company’s capital. A share entitles the shareholders to an equal claim on profit and losses of the company. There are mainly two kinds of shares i.e. equity shares and preference shares.

Different types of shares:

As per section 43 of the Companies Act 2013, the share capital of the company is of two types:

1. Preference Share Capital
2. Equity Share Capital

1. Preference Share :
   Preferential shares are preferential in nature. During the liquidation of the company, the shareholders holding preferential shares are paid out first after settling the debts of the creditors of the company. Also, preferential shareholders do not have any voting rights. Various types of preferential shares are seen based on structure, maturity terms, nature of dividend payment, etc. below are some common types:
   • Cumulative Preference Shares:
     • Arrears will be received in subsequent years
     • At the time of inadequate profit, you will not lose anything.
     • The fixed rate of dividend is guaranteed.
   • Non-Cumulative Preference Shares:
     • At the time of inadequate profit, they will not get anything.
     • Fixed rate of dividend is guaranteed.
   • Participating Preference Shares:
     • Entitled to share the surplus profit
     • Fixed rate of dividend is guaranteed.
   • Non-participating Preference Shares:
     • Does not share the surplus profit.
     • Fixed rate of dividend is guaranteed.
   • Convertible Preference Shares:
     • It can be converted into Equity shares within a certain period.
   • Non-Convertible Preference Shares:
     • It cannot be converted into Equity shares.
   • Redeemable Preference Shares:
     • Shares which a company may repay after a fixed period of time or earlier.
   • Irredeemable Preference Shares:
     • Shares are repayable only at winding up.
     • It does not carry the arrangement for redemption.
2. Equity Share Capital:
   Equity Shares are also known as ordinary shares. Equity shares are one of the most common types of share. These are equal in value and also impart various rights like voting rights, dividends, etc. to the shareholders. These shares are traded in stock exchange and are issued at a face value.
   Why are shares issued by a company?
   Issuing shares in share market can provide the following advantages:
   • New finances
   • Market valuation for the company
   • A mechanism for an investor to trade shares

Meaning and Definition of Calls:
A call may be defined as a demand made by the company on its shareholders to pay a part or the whole of the unpaid balance within a specified time. Lord Lindley says that the expression “Call” denotes both the demand for money and also the sum demanded.

The following points should be noted, in this context, so that the reader can understand what a call really means:

• Time for Making the Call: The call can be made at any time during the life time of the company or during the course of winding up. During the life time, the call should be made by the Board of Directors and during the course of winding up, it should be made by the liquidator.
• Obligatory: Each shareholder is obliged to pay the amount of call as and when the call is made. But, this liability arises only when the call is made and not before.
• Debt Due: As soon as a call is made, the call amount shall become a debt due from the shareholders to the company.
• Consequences of Default: If a shareholder fails to pay the call amount, the company can enforce payment of the amount together with interest or can forfeit the shares.
• Calls and Other Payments: A call is different from other payments made by a shareholder. The amounts paid on application and allotment are not calls. Similarly, if a company requires the shareholders to pay the entire amount either on application or on allotment, it is not a call under this Act.

Legal Provisions Relating to the Calls:

The statutory provisions relating to the making of calls can be summed up as follows:

• Call should Bona fide: The power to make call is generally in nature of a trust and so it can be exercised bona fide and for the benefit of the company. It should not be made for
• Uniformity: The calls should be made on an uniform basis on all the shares falling under the same class . If a call is made only on some shareholders of the same class but not on others or a greater amount is demanded from some shareholders and a lesser amount from others of the same class, the call is not valid.
• Provisions of the Articles: The calls should be made strictly in accordance with the provisions of the Articles. If this is not done, the call will be invalid.
• private ends: It means the directors or the liquidator can make the call only when there is a bona fide need for funds.

Procedure for making Calls:
Generally, the procedure for making calls is incorporated in the Articles of most companies. If a company has its own Articles, it should follow the provisions of its Articles. If not, the regulations specified in Table A of the Act shall apply.

The following provisions of Table A can be noted at this stage:

• The power to make calls generally vests in the Board of Directors.
• The calls should be made by passing a resolution at the meeting of the Board.
• The call money should not exceed 50% of the face value of the share at one time. However, companies may have their own Articles and raise this limit.
• There must be at least 30 days interval between two successive calls.
• When a call is made a letter known as “Call Letter” or “Call Notice” should be sent to all the shareholders of the same class.
• The notice should also specify the amount of the call, place of payment etc. and should be sent at least 14 days before the last date for payment.
• The Board of directors has the power to revoke or postpone a call after it is made.
• Joint shareholders are jointly and severally liable for payment of calls.
• If a member fails to pay call money, he is liable to pay interest not exceeding the rate specified in the Articles or terms of issue. The directors are free to waive the payment of interest.
• If any member desires to pay the call money in advance, the directors may at their discretion accept and pay interest not exceeding the rate specified in the Articles.
• A defaulting member will not have any voting right till call money is paid by him.

Forfeiture of Shares:
If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending several reminders, the company may forfeit his shares. Forfeiture of shares results in a permanent reduction of the share capital.

Conditions for Forfeiture of shares:

A company can forfeit its shares only when the following conditions are satisfied:

• Authority to Forfeit: The power to forfeit must be expressly given in the Articles. Accordingly, if no power is given in the Articles, no forfeiture can be made.
• Default in Payment of Calls: The shares can be forfeited only for the non-payment of calls and not for the default in payment of any other debts.
• In Accordance with the Articles: Forfeiture shall be valid only when the provisions of the Articles are strictly complied with. Even a slight deviation from the provisions shall render the forfeiture invalid.
• Bonafide and for the Benefit of the Company: The right to forfeit shares is in the nature of trust and so it can be exercised bonafide and only for the benefit of the company. The power cannot be exercised hastly or for private ends.
• Board Resolutions: Forfeiture will be effected only by means of a Board resolution.
• Notice to Defaulting Shareholder: Notice precedent to forfeiture must be given to the defaulting shareholder. In the matter of forfeiture of shares, technicalities must be strictly observed.

Procedure of forefeiture of shares:

The following procedure must be followed for forfeiture of shares:

• The secretary shall prepare a list of defaulters i.e., the list of members who have not paid the call money up to the last date, and place it before the Board of Directors for necessary action.
• The Board of Directors then passes a resolution instructing the secretary to send call notices to such defaulters.
• As per Board’s resolution, the secretary dispatches the notices under registered post to the defaulting shareholders asking them to pay the call dues within 14 days with interest at a specified rate.
• If any defaulting member does not comply with the requirements of such notice, a second warning notice may be sent stating that if the call money is not received within 14 days from the date of notice, the forfeiture of shares will follow.
• If this notice also proves ineffective, the secretary convenes a meeting of the Board of Directors and places the facts before it. The Board then passes a formal resolution to forfeit the shares.

Annulment of Forefeiture:

After the forfeiture of shares, if the defaulting shareholder likes to pay the amount due and requests the company to cancel the forfeiture of his shares, the secretary should take the following steps:

• Board meeting is to be convened to settle the terms of annulment or cancellation of the forfeiture. This will be done by passing a resolution. Such resolution generally calls upon the defaulting member to pay off calls due together with interest.
• A letter should be sent to the shareholder informing that on fulfillment of the conditions laid down by the Board, his name will be entered in the register of members.