CS Executive · Company Law and Practice
Share and Share Capital Concepts for CS Executive
Share capital is the money a company raises by issuing shares. Under Section 43, a company limited by shares has two kinds: equity and preference. To solve questions, identify the kind of share, state the rights attached, apply Section 47 voting rules or Section 61 alteration steps, and end with a clear conclusion.
What this chapter covers
This chapter builds the base for everything the paper says about raising money. It starts with what a share is and what share capital means. Then it moves to the two kinds of share capital under Section 43, the rights of equity and preference holders, how a company can alter its share capital under Section 61, and the special rule for Producer Companies under Section 378ZB.
The chapter is mostly about definitions and conditions. Questions ask you to state a provision, apply it to facts, and conclude. So you must know the exact words that trigger a rule, such as "if so authorised by its articles" in Section 61.
It links forward to later chapters of Paper 2 on issue of shares, further issue, buy-back and reduction of capital. It also links to Paper 4, where preference share redemption and securities premium are used in accounting. If you are clear here, those chapters become easier.
This chapter gives you short, predictable answers that you can write with confidence. Section 43, Section 47 and Section 61 are specific provisions that suit the ICSI answer style: provision, analysis, conclusion. The concepts also carry into issue of shares, redemption, buy-back and accounting, so time spent here pays off across Paper 2 and Paper 4. Since every paper is written and there is no negative marking, a clear and complete answer on these sections earns marks that guesswork cannot.
Share and Share Capital - Concepts: topics in the order to study them
- 1Meaning and Nature of Shares and Share CapitalStart here because every later section assumes you know what a share is and how share capital is described.
- 2Kinds of Share Capital under Section 43This gives the two-way split of equity and preference capital that the rest of the chapter builds on.
- 3Equity Shares and Preference SharesOnce you know the two kinds, compare their dividend, repayment and voting rights, including the Section 47 rules.
- 4Alteration of Share Capital under Section 61Study this after the kinds of shares, because the alterations (increase, consolidation, conversion, sub-division, cancellation) act on those shares.
- 5Share Capital of Producer Companies (Section 378ZB)Keep this for last as a short special case that you can compare against the general rules.
How to prepare Share and Share Capital - Concepts
This chapter rewards precise recall of provisions, so prepare in a way that trains exact wording and application.
- Read the meaning of share and share capital once, then write a two-line definition in your own words.
- Read Section 43 and list what counts as equity capital and what counts as preference capital. Note that equity capital means all share capital that is not preference capital.
- Make a comparison table on paper for equity and preference shares covering dividend, repayment on winding up and voting rights. Learn the Section 47 voting rules, including the two-year unpaid dividend rule for preference holders.
- List the five alterations under Section 61(1) with their conditions: articles must authorise, general meeting, Tribunal approval if voting percentage changes on consolidation, and the same paid-to-unpaid proportion on sub-division. Note that cancellation of unissued shares is not a reduction of capital.
- Learn the filing rule: a notice to the Registrar within thirty days under Section 64, with the altered memorandum.
- Write a few answers in the format: provision, facts, conclusion. Time yourself so you can finish a short answer in a few minutes.
- Revise Section 378ZB by comparing it with Section 43: Producer Companies have equity shares only, held broadly in proportion to patronage.
Common mistakes in Share and Share Capital - Concepts
Treating preference shares as a separate legal type unrelated to equity, or defining equity as only shares with voting rights.
Fix: Quote the Explanation: equity share capital means all share capital which is not preference share capital.
Saying preference shareholders never have voting rights.
Fix: State both limbs: voting on matters affecting their rights, winding up, and repayment or reduction of capital, plus full voting if dividend is unpaid for two years or more.
Forgetting the conditions for alteration under Section 61.
Fix: Start every Section 61 answer with the condition, then name the specific alteration and its proviso.
Calling cancellation of unissued shares under Section 61 a reduction of capital.
Fix: Remember Section 61(2): cancellation of shares not taken is not a reduction of share capital.
Missing the filing step after alteration.
Fix: Add the notice to the Registrar within thirty days with the altered memorandum under Section 64, and mention the penalty exists for default.
Applying the general share rules to Producer Companies.
Fix: Remember that Producer Company capital is equity only and member shareholding follows patronage as far as may be.
Last-day revision: Share and Share Capital - Concepts
- 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).
Share and Share Capital - Concepts practice questions
- Kaveri Textiles Ltd has 8% preference shares that carry a preferential right to a fixed dividend and to repayment of capital on winding up. …
- Vistara Engineering Ltd wishes to reduce its share capital by paying off paid-up capital that is in excess of the company's wants. It has pa…
- Meghdoot Textiles Ltd, a company limited by shares, has issued shares of various kinds. Under Section 43 of the Companies Act, 2013, which p…
- Rohini Engineering Ltd wishes to issue equity shares carrying differential rights as to dividend and voting. Under Section 43(a), on what ba…
- Kaveri Foods Ltd has issued shares that carry a preferential right to a fixed 9% dividend and also a right to share with equity shareholders…
- Sundaram Foods Ltd has 1,00,000 shares of Rs 100 each, Rs 60 paid up on each. Its articles permit alteration of capital. It passes a resolut…
- Mahalaxmi Foods Ltd has issued preference shares of a particular class. The dividend on this class has not been paid for the last three year…
- Meridian Textiles Ltd, a company limited by shares, has Rs 10 lakh of its authorised capital represented by shares that nobody has taken or …
Share and Share Capital - Concepts in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Share and Share Capital - Concepts: frequently asked questions
What are the two kinds of share capital under Section 43?
A company limited by shares has equity share capital and preference share capital. Equity capital may carry voting rights or differential rights as to dividend, voting or otherwise, as per prescribed rules. Equity is defined as all share capital that is not preference capital.
Do preference shareholders have voting rights?
Only in limited cases under Section 47(2). They vote on resolutions that directly affect their preference shares, and on winding up or repayment or reduction of capital. If the dividend on a class has not been paid for two years or more, that class can vote on all resolutions.
Can a company alter its share capital without authority in its articles?
No. Section 61(1) allows alteration only if the articles authorise it, and the memorandum is altered in a general meeting. Check the articles first in any answer.
What is special about share capital of a Producer Company?
Under Section 378ZB, the share capital of a Producer Company consists of equity shares only. Shares held by a member should, as far as may be, be in proportion to the member's patronage of the company.
How should I write answers from this chapter in the exam?
State the provision with its section number, apply it to the facts given, and finish with a clear conclusion. Keep the conditions of the rule in your answer, since examiners look for them.