CS Executive · Company Law and Practice

Share and Share Capital - Concepts: formula sheet

Full chapter guide

Key formulas

Order of capital layers: Paid-up capital ≤ Called-up capital ≤ Subscribed capital ≤ Issued capital ≤ Authorised capital; Each layer is a part of the one before it. Use this to test any numerical or theory answer.
Uncalled capital: Uncalled capital = Subscribed capital − Called-up capital; Calls in arrear are part of called-up but not paid-up.
Paid-up capital: Paid-up capital = Called-up capital − Calls in arrear; Paid-up is what has actually been received on the shares.
Nature of a share: Share = movable property, transferable as per articles and the Act; It is a bundle of rights and liabilities, not a claim over specific assets.
Section 61(1) alteration powers: Increase authorised capital; consolidate; convert into stock; sub-divide; cancel unissued shares; Needs authority in the articles and a general meeting resolution. Cancelling unissued shares is not a reduction (section 61(2)).
Section 66 reduction: Special resolution + Tribunal confirmation; Not allowed if the company is in arrears in repaying deposits or interest on them.
Two kinds of share capital: Share capital = Equity share capital + Preference share capital; Applies to a company limited by shares. No other kind is recognised in Section 43.
Meaning of equity share capital: Equity share capital = all share capital that is not preference share capital; It is either with voting rights or with differential rights as to dividend, voting or otherwise, as per prescribed rules.
Test for preference share capital: Preferential right to dividend (fixed amount or fixed rate) AND preferential right to repayment of paid-up capital on winding up or repayment of capital; Both preferential rights must be present for capital to be preference capital.
Participating preference shares: Preference capital + right to participate in extra dividend and/or surplus on winding up = still preference capital; Participation does not change its character, as per the Explanation to Section 43.
Kinds of share capital (Section 43): Share capital = Equity share capital + Preference share capital; Equity means all share capital which is not preference capital. Equity may be with voting rights or with differential rights as to dividend, voting or otherwise under prescribed rules.
Test for preference capital: Preference = preferential right to dividend (fixed amount or fixed rate) AND preferential right to repayment of capital; Carrying both rights makes it preference, even if it also participates in extra dividend or surplus assets. Equity share capital means all share capital which is not preference capital (Section 43, Explanation (i)).
Voting of equity members (Section 47(1)): Right to vote on every resolution; poll vote ∝ share in paid-up equity capital; Subject to sections 43, 50(2) and 188(1). Applies to members of a company limited by shares holding equity.
Voting of preference members (Section 47(2)): Vote only on resolutions directly affecting rights of those shares, or for winding up, or repayment/reduction of equity or preference capital; Poll vote is in proportion to share in paid-up preference capital.
Arrears rule (proviso to Section 47(2)): Dividend unpaid for 2 years or more on a class ⇒ that class votes on all resolutions; The rule is for that class whose dividend is unpaid.
Redemption of preference shares (Section 55): No irredeemable preference shares; redeemable within 20 years of issue; fully paid; out of profits available for dividend or fresh issue proceeds; premium on redemption provided for before redemption; Authorisation by articles is required. Infrastructure projects may exceed twenty years, subject to prescribed annual redemption at holders' option. Under Section 55(2)(d), for the prescribed class of companies whose financial statements comply with the accounting standards under section 133, the premium must be provided for out of profits before redemption. In other cases it may be provided for out of profits or the securities premium account (also Section 52(2)(d)).
Capital Redemption Reserve (Section 55(2)(c)): CRR = nominal amount of shares redeemed out of profits; Transfer is needed only when redeeming out of profits, not out of a fresh issue. CRR can be used to issue fully paid bonus shares.
Filing on redemption (Section 64): Notice to Registrar within 30 days of redemption, with altered memorandum; Default penalty is ₹500 per day, up to ₹5,00,000 for the company and ₹1,00,000 for an officer in default.
Power and condition: Limited company + share capital + authorised by articles + general meeting → alter memorandum; Check the articles first. If they do not authorise, alter the articles before using Section 61.
Five alterations under Section 61(1): (a) Increase authorised capital; (b) Consolidate and divide into larger shares; (c) Convert into stock and reconvert; (d) Sub-divide into smaller shares; (e) Cancel unissued shares; Remember the order a to e. Examiners often ask you to list or explain them.
Consolidation proviso: Consolidation and division that changes voting percentage of shareholders → needs Tribunal approval, on an application made in the prescribed manner, before it takes effect; This is the only Tribunal approval mentioned in Section 61(1). It is given by the Tribunal on an application made in the prescribed manner. Section 61(1) does not require Tribunal approval for the other alterations.
Sub-division rule: Paid-up ÷ unpaid proportion on each new share = same as on the original share; Example: ₹100 share with ₹60 paid and ₹40 unpaid, split into 10 shares of ₹10, gives ₹6 paid and ₹4 unpaid on each.
Stock conversion: Only fully paid-up shares can be converted into stock; Stock can be reconverted into fully paid-up shares of any denomination.
Cancellation is not reduction: Cancellation of unissued shares under Section 61(1)(e) ≠ reduction of share capital; Section 61(2) says so. Hence no Tribunal confirmation under Section 66 is needed.
Filing under Section 64: Notice in prescribed form to Registrar within 30 days of alteration, with altered memorandum; Penalty for default: ₹500 per day, capped at ₹5,00,000 for the company and ₹1,00,000 for each officer in default.
Kind of share capital: Producer Company share capital = equity shares only; Section 378ZB(1). No preference shares, unlike Section 43 for ordinary companies.
Shareholding rule: Shares held by a member ∝ member's patronage (as far as may be); Section 378ZB(2). It is a proportion to be followed as far as may be.
General voting rule: One member = one vote; chairman has a casting vote on a tie, except in election of the Chairman; Section 378Z, subject to Section 378D(1) and (3).
Voting, individuals only: One vote per member, irrespective of shareholding or patronage; Section 378D(1)(a).
Voting, Producer Institutions only: Votes based on participation in business in the previous year, as the articles specify; in first year, based on shareholding; Section 378D(1)(b) and its proviso.
Voting, mixed membership: One vote per member; Section 378D(1)(c).
Restriction to active members: Voting may be limited to active members if the articles authorise it; Section 378D(3), applies in special or general meetings.

Quick revision

Share capital of a company limited by shares is of two kinds under Section 43: equity and preference.
Equity share capital means all share capital that is not preference share capital.
Equity may carry voting rights or differential rights as to dividend, voting or otherwise, as per prescribed rules.
Preference capital carries a preferential right to dividend (fixed amount or fixed rate) and to repayment of capital on winding up.
Capital stays preference even if it also participates in dividends or surplus with other capital.
Equity holders can vote on every resolution; poll voting is in proportion to paid-up equity capital (Section 47).
Preference holders vote only on resolutions affecting their rights, winding up, or repayment or reduction of capital.
If preference dividend is unpaid for two years or more, that class can vote on all resolutions.
Section 61 alterations need authority in the articles and a general meeting resolution to alter the memorandum.
Consolidation that changes voting percentages needs Tribunal approval; sub-division must keep the paid-to-unpaid proportion.
Cancelling shares not taken or agreed to be taken is not a reduction of capital.
A Producer Company has equity shares only, held as far as may be in proportion to patronage (Section 378ZB).

Common mistakes

Treating authorised capital as money the company has actually raised. Fix: Remember authorised capital is only the ceiling stated in the memorandum. Money raised is shown by paid-up capital.
Saying a share is a claim on the company's assets. Fix: Write that the company is a separate person and the share is a movable property giving rights and liabilities, not title to specific assets.
Saying there are three kinds of share capital, adding differential rights shares as a separate kind. Fix: Differential rights shares are a type of equity share capital. Section 43 has two kinds only.
Defining equity share capital by its features instead of by exclusion. Fix: Quote the statutory definition: all share capital which is not preference share capital.
Saying preference shareholders have no voting rights at all. Fix: State they vote on resolutions directly affecting their rights, winding up, and repayment or reduction of capital. Add the two-year arrears rule.
Treating participating preference shares as equity. Fix: Remember Section 43 keeps such capital as preference if it has the preferential rights, even with a right to participate.
Saying Tribunal approval is needed for every alteration. Fix: Tribunal approval under Section 61 is needed only where consolidation and division changes the voting percentage of shareholders. Reduction under Section 66 needs Tribunal confirmation.
Treating cancellation of unissued shares as a reduction of capital. Fix: Section 61(2) says cancellation under Section 61(1) is not a reduction. It applies only to shares not taken or agreed to be taken by anyone.
Saying a Producer Company may issue preference shares like any company under Section 43. Fix: Remember Section 378ZB(1): equity shares only. Section 43 is the general rule for ordinary companies limited by shares.
Saying votes are in proportion to shares held, as in Section 47. Fix: For Producer Companies, use Sections 378Z and 378D. Individual members get one vote each irrespective of shareholding.

Exam tips

Define in this order: share, nature, then capital terms. ICSI answers reward a clear structure: provision, analysis, conclusion.
For a short note on share capital, list all five layers with a one-line meaning each. Add one numerical illustration if time allows.
In distinction questions on authorised and paid-up capital, give at least four points: meaning, limit or ceiling, source of money, and effect on the balance sheet.
Always cite section 61 for alteration and section 66 for reduction with their exact conditions. Do not mix them.
Show the working in numerical questions. Marks are given for each correct layer even if one figure is wrong.
Begin every answer with the rule: two kinds only, equity and preference, for a company limited by shares, citing Section 43.
Remember the definition of equity is by exclusion. Examiners like this exact point.
In classification problems, run the two-limb preference test and then state your conclusion.