Corporate and Other Laws · Share Capital and Debentures

Kinds of Share Capital and Voting Rights (Companies Act, 2013)

Updated 4 October 2026 · Fact-checked

A company limited by shares has two kinds of share capital under Section 43: equity (with voting rights, or with differential rights) and preference. Preference shares carry or would carry a preferential right to dividend and to repayment of capital. Voting rights follow Section 47. Answer by stating the provision, applying it to the facts and concluding.

Understand Kinds of Share Capital and Voting Rights

A company limited by shares raises money by issuing shares. Section 43 says this share capital is of two kinds only: equity share capital and preference share capital.

Equity share capital is defined by exclusion. It means all share capital which is not preference share capital. It can be (i) with voting rights, or (ii) with differential rights as to dividend, voting or otherwise, in accordance with the rules prescribed. So differential voting rights (DVR) are a type of equity, not a third kind of capital.

Preference share capital is that part of the issued share capital which carries or would carry a preferential right with respect to (a) payment of dividend, either as a fixed amount or at a fixed rate, and (b) repayment of the paid-up amount on winding up or repayment of capital. The test is whether the share carries or would carry these preferential rights. A share does not stop being preference merely because it also participates with equity in extra dividend or in surplus left after all capital is repaid. Such participating preference shares are still preference capital.

Voting is covered by Section 47. Equity holders can vote on every resolution, and on a poll their vote is in proportion to their share in the paid-up equity capital. Preference holders can vote only on limited matters: resolutions directly affecting the rights attached to their shares, and resolutions for winding up or for repayment or reduction of equity or preference capital. But if the dividend on a class of preference shares has not been paid for two years or more, that class can vote on all resolutions.

The terms authorised, issued, subscribed, called-up and paid-up capital are also tested. Authorised capital is the maximum capital the memorandum permits. Issued capital is the part of authorised capital that the company has offered for subscription. Subscribed capital is the part of the issued capital that investors have actually taken up. Called-up capital is the amount the company has demanded on the subscribed shares. Paid-up capital is the amount actually received on those shares. So the chain is: authorised ≥ issued ≥ subscribed ≥ called-up ≥ paid-up. The statutory definitions of these terms are not in the text provided here, so learn their exact wording from your study material.

Key rules to remember

Kinds of share capital (Section 43): Share capital = Equity share capital + Preference share capital; Only these two kinds are allowed for a company limited by shares. Equity can be with voting rights or with differential rights.
Meaning of equity share capital: Equity share capital = all share capital that is not preference share capital; This is a definition by exclusion, given in the Explanation to Section 43.
Test for preference share capital: Preference = share capital that carries or would carry a preferential right to dividend (fixed amount or fixed rate) and to repayment of capital on winding up or repayment of capital; The test is the preferential rights the share carries or would carry. Extra participation in profits or surplus does not change its status as preference capital.
Voting right of equity holders (Section 47(1)): Vote on every resolution; vote on a poll ∝ share in paid-up equity share capital; This is subject to Sections 43, 50(2) and 188(1), as the text of Section 47(1) states.
Voting right of preference holders (Section 47(2)): Vote only on (i) resolutions directly affecting rights of their shares, (ii) winding up, (iii) repayment or reduction of equity or preference capital; Vote on a poll is in proportion to the share in paid-up preference capital.
Preference holders voting on all resolutions: Dividend on a class unpaid for 2 years or more ⇒ that class votes on all resolutions; The right applies to the class whose dividend is unpaid.
Order of capital terms: Authorised ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up; Called-up is the amount demanded on subscribed shares. Paid-up is what has actually been received.

How to solve Kinds of Share Capital and Voting Rights questions

Use this method for any theory or case-study question on kinds of share capital and voting rights.

1Identify what is asked: kind of capital, definition of a term, or who can vote on what.
2State the rule first. For kinds of capital, quote Section 43: equity (with voting rights or differential rights) and preference.
3Test the share in the facts. For preference, check whether it carries or would carry a preferential right to dividend and to repayment of capital. If it does not, it is equity.
4For voting, decide whether the holder is equity or preference. Equity holders vote on every resolution.
5For preference holders, check the subject of the resolution. If it affects their rights, or is a winding up or capital repayment or reduction, they vote. Also check whether their dividend has been unpaid for two years or more.
6For poll voting, work in proportion to paid-up capital of that kind of share.
7Apply the rule to the facts, then write a one-line conclusion.

Quickest way: Two-question filter for MCQs and written answers

When to use it: Use it when time is short, in the 30 marks of MCQs and in the short case-based written answers.

Ask 1: Is the share capital equity or preference? Preference means it carries or would carry a preferential right to fixed dividend and to capital repayment. Everything else is equity.
Ask 2: Who is voting, and on what? Equity votes on everything. Preference votes only on its own rights, winding up, or capital repayment or reduction, unless dividend is unpaid for two years or more.
In MCQs, eliminate options that call DVR a third kind of capital or say preference holders always vote on everything.
In written answers use this format: Provision, Facts, Conclusion. Write the section number, apply it in one or two lines, and end with a clear conclusion. This earns step marks even if the final view is debated.

Common mistakes in Kinds of Share Capital and Voting Rights

Saying there are three kinds of share capital: equity, preference and differential voting.
DVR is taught as a separate heading, so it looks like its own category.
Fix: Section 43 gives two kinds. Differential rights fall within equity share capital, as sub-clause (ii) of clause (a).
Saying preference shareholders can never vote.
Students remember only that they have limited voting rights.
Fix: They vote on resolutions directly affecting their rights, winding up, and repayment or reduction of capital. They vote on all resolutions if the dividend on their class is unpaid for two years or more.
Treating a participating preference share as equity because it shares in surplus.
Students think any extra participation makes a share equity.
Fix: Section 43 deems such capital to be preference capital even if it also participates in dividends or surplus, as long as it carries or would carry the preferential rights.
Mixing up issued, subscribed, called-up and paid-up capital.
The terms sound alike and are often used loosely.
Fix: Remember the chain: authorised is the ceiling, issued is the part offered for subscription, subscribed is the part taken up, called-up is the amount demanded on subscribed shares, and paid-up is the money actually received. So authorised ≥ issued ≥ subscribed ≥ called-up ≥ paid-up.
Calculating poll votes on the number of shares regardless of paid-up amount.
Students assume one share equals one vote.
Fix: Section 47 links poll voting to the share in paid-up capital. Use the paid-up amount as the base.
Applying the two-year unpaid dividend rule to all preference shareholders at once.
The wording is read loosely.
Fix: The right belongs to the class of preference shares whose dividend is unpaid. Another class that has been paid does not get it.

Worked examples

Example 1

Delta Ltd has ₹50,00,000 paid-up equity share capital and ₹10,00,000 paid-up 8% preference share capital. Preference dividend has been paid every year. Two resolutions are placed before the company: (1) a resolution to alter the rights attached to the preference shares, and (2) a resolution to appoint a director, which does not affect preference rights. Can the preference shareholders vote on each?

Show the solution

Provision: Under Section 47(2), preference holders can vote only on resolutions directly affecting the rights attached to their shares, on winding up, and on repayment or reduction of equity or preference capital.
Facts, resolution 1: it alters the rights attached to the preference shares, so it directly affects them.
Facts, resolution 2: appointment of a director does not affect their rights, and it is not a winding up or capital repayment or reduction.
Check the exception: the second proviso gives voting on all resolutions only where the dividend on the class is unpaid for two years or more. Here the dividend has been paid every year, so the exception does not apply.

Answer: Preference shareholders can vote on resolution 1, which alters their rights, but not on resolution 2, the director appointment.

Example 2

Sigma Ltd issued 1,00,000 equity shares of ₹10 each and 20,000 preference shares of ₹10 each, all fully paid. On a poll, a resolution directly affecting the preference shares' rights is put to vote. A holder has 5,000 preference shares. What is the holder's share in the paid-up preference capital, and how does the voting right on a poll work?

Show the solution

Provision: Section 47(2) says the voting right on a poll is in proportion to the holder's share in the paid-up preference share capital.
Paid-up preference capital = 20,000 × ₹10 = ₹2,00,000.
Holder's paid-up amount = 5,000 × ₹10 = ₹50,000.
Holder's share = ₹50,000 ÷ ₹2,00,000 = 25%.
Conclusion: on a resolution on which only preference holders vote, the holder's vote on a poll is in proportion to its share, that is 25%, of the paid-up preference capital.

Answer: The holder has 25% of the paid-up preference capital, so 25% of the preference votes on the poll.

Exam tips

Begin every answer with the section number and its exact rule. Section 43 for kinds of capital and Section 47 for voting are the ones to cite from memory.
In a case study, mark the type of holder first, then the subject of the resolution, then check the two-year unpaid dividend exception.
Write the definition of preference capital with both rights: dividend and repayment of capital. Use the words carries or would carry. Missing one loses marks.
For MCQs, watch for absolute words such as always and never about preference voting. They are usually wrong.
Define authorised, issued, subscribed, called-up and paid-up capital in one line each and show their order.

Practice questions from Share Capital and Debentures

Kinds of Share Capital and Voting Rights in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Kinds of Share Capital and Voting Rights: frequently asked questions

How many kinds of share capital does Section 43 recognise?

Two: equity share capital and preference share capital. Equity can be with voting rights or with differential rights as to dividend, voting or otherwise, in accordance with the prescribed rules.

What is the main difference between equity shares and preference shares?

Preference shares carry or would carry a preferential right to a fixed dividend and to repayment of capital on winding up. Equity shares are all other share capital and carry full voting on every resolution. Preference holders have limited voting under Section 47(2).

When can preference shareholders vote on all resolutions?

When the dividend on their class of preference shares has not been paid for a period of two years or more. Then that class can vote on all resolutions placed before the company.

Are differential voting rights a separate kind of share capital?

No. They are a form of equity share capital under Section 43. The shares may have differential rights as to dividend, voting or otherwise, as per the prescribed rules.