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

Sundaram Textiles Ltd, a company limited by shares, has issued some shares that carry no preferential right to dividend at a fixed rate and no preferential right to return of capital on winding up. Under the definition in Section 43, how is this part of its share capital classified?

It is equity share capital. Section 43 defines equity share capital as all share capital that is not preference share capital, and shares without a preferential right to fixed dividend or to capital repayment on winding up are not preference shares.

  1. AEquity share capital, because it is all share capital that is not preference share capitalCorrect
  2. BPreference share capital, because it is issued by a company limited by shares
  3. CReserve share capital, because it carries no preferential rights
  4. DStock, because it has no fixed dividend

Explanation

Section 43 states that equity share capital means all share capital which is not preference share capital. Shares with neither a preferential dividend right nor a preferential right to repayment in winding up therefore fall in the equity category. Reserve capital is a different concept linked to uncalled capital.

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