Skip to content

CS Executive · Company Law and Practice · Share and Share Capital - Concepts

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 in the surplus remaining after all capital has been repaid on winding up. How are these shares classified under Section 43?

These shares are preference share capital. Section 43 provides that capital remains preference capital even if, besides its preferential dividend and repayment rights, it also participates fully or partly with other capital in dividends or in surplus on winding up. There is no separate participating kind.

  1. AEquity share capital, because they participate in surplus
  2. BPreference share capital, despite the participation rightsCorrect
  3. CA third kind of capital called participating capital
  4. DEquity share capital, because the dividend rate is fixed in percentage terms

Explanation

Under the Explanation to Section 43, capital is deemed to be preference capital even if it also has a right to participate in dividends or in surplus on winding up, in addition to its preferential rights. Treating it as equity ignores this deeming rule. The Act recognises only two kinds.

Did you get it right without looking?

One question tells you little. A timed set on Share and Share Capital - Concepts shows your real accuracy, how long you take and where you lose marks.

Practise Share and Share Capital - ConceptsFree diagnostic mock

More Share and Share Capital - Concepts questions