Kinds of Share Capital



Pondering through the concept of capital, it has different connotations for different people in different industries and profession. Capital in general is considered as money, which a company raised by its issue of its shares to meet its requirements and needs for acquiring land, building, machinery, stock in trade etc. Shares and debentures are the financial instruments that help the company to arrange its funds for functioning and under the Companies Act, 2013 it is termed as ‘securities’. Shares represent the ownership that a person has on the company with both profits as dividends and losses that comes across the business enterprise. After the shares being issues, the share capital of the company may alter or reduce for which the requisite provisions for the alteration or reduction of share capital has to be adhered upon.

Sec 2(84) of the Companies Act, 2013 defines as a share in the share capital of the company and includes stock. The share capital is thus distributed into small units having a face value and such a unit is termed a share.


  • Nominal or Authorized Share Capital

Capital which is as authorized by the memorandum of association of the company which is the maximum amount of share capital of the company is called as Authorized Share Capital.

  • Issued Capital

When the company issues capital for subscription time to time it is known as issued capital which is that art of authorized capital which the company issues for the time being for public allotment which is stipulated at the nominal value.

  • Subscribed Capital

It is that portion of the capital which is subscribed by the members of the company at the face value which has been subscribed or taken up by the subscribers of the shares in the company. Thus the entire issued capital cannot be subscribed at once.

  • Called-up Capital

The part of the capital under the subscribed capital which is called for payment or demanded on the shares of the company is called called-up capital.

  • Paid-up Share Capital

The aggregate amount which is credited up as paid-up equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company.
But is not inclusive of any amount received in respect of such shares by whatever name they are mentioned as.


  • Equity Share Capital

Share Capital which is not categorized under the preference share capital which has no fixed and guaranteed amount of dividend but has the voting rights in the company is equity share capital.

Section 43 (i) have an explanation that equity share capital with reference to company limited by shares means all share capital which is not preference share capital.

Equity Share Capital is widely recognized as Common Stock as it represents ownership in the company which is divided into shares and the people who own these shares are known as shareholders who are real owners of the company that devises policies for the company’s business.

Since they do not have access to the daily affairs of the company they appoint their representatives to look after the management who are directors of the company.

Characteristics of Equity Shares

  1. Equity shares are accompanied with voting rights at all general meetings of the company which affects the controlling and management of the company.
  2. Equity Shares have the right to share the profits of the company in the form of dividends, bonus shares where the shareholders cannot demand declaration of the dividend on which the Board of Directors has complete opinion and influence.
  3. The equity shareholders can make their claims only after the creditors and the preference shareholders have dealt with in the event the company is wound up.

Equity Shares with differential voting rights

Equity shares with differential rights which might be to dividend or any in consonance with any other rules as may be prescribed.

Rule 4 of the Companies (Share Capital and Debenture) Rules, 2014 contains provisions which stated for `the equity shares with differential rights.

The issue of equity shares with differential rights can be made if it complies with the conditions as stated:

  1. The articles of association of the company allows to issue the shares with differential rights;
  2. An ordinary resolution has been passed in favour for the issue of shares at the general meeting of the shareholders;
  3. The voting rights in respect of shares with differential rights of the company shall not exceed 74% of the total voting power inclusive of that of the voting power in respect of equity shares with differential voting rights;
  4. The company has not defaulted in filing the financial statements and annual returns of the company for immediately preceding three financial years on which the company has decided to issue shares;
  5. The company has no subsisting default in payment of the dividend on preference share or redemption of its preference shares or debentures which have gained maturity repayment or repayment of its matured deposits or any term loan insured from any financial institutions which has become repayable or interest payable on dues with respect to statutory payments or default in crediting the amount to Investor Protection Fund to the Central Government;
  6. The company has not been penalized by the Court or Tribunal during the last three preceding years under any offence of RBI Act, 1934, SEBI Act, 1992, SCRA 1956, FEMA 1999 or under any other special Act under which the companies are regulated by the statutory authorities.

Also the company cannot convert the existing equity share to equity share with differential rights or equity shares with differential rights to equity shares.

  • Preference Shares

Section 43 as per the Explanation states that Preference Share Capital means that part of share capital with preferential right in

  1. Payment of Dividends and must carry a preferential right to fixed amount or amount calculated at a fixed rate
  2. In the event of winding up of the company, there must be a preferential right to repay the amount of the capital paid up on such share.

With Preference Share Capital, the shareholders can vote only on resolutions placed before the company which directly affects the rights of the shareholders who own preference shares, or in the event a resolution is introduced for the winding up of the company which directly affects the rights attached to his preference shares.

  1. Cumulative and Non-Cumulative Preference Shares

In cumulative preference shares the dividends are accumulated and paid prior to anything paid to the equity shares and in noncumulative if the company does not pay any dividend in the current year, the claim of the preference shareholder would be null.

  1. Convertible and Nonconvertible Preference Share

In Convertible Preference Share there exists an option to convert it into ordinary equity share at some agreed conditions whereas in Nonconvertible Preference Shares an option of conversion is not provided with.

  1. Participating and Non-Participating Preference Share

Apart from the preferential dividend, participating preference shares has the right to participate in the surplus profits of the company whereas non-participating preference shares cannot participate in the surplus profits of the company with only the right to exercise the option of dividend.

  1. Redeemable and Non-Redeemable Preference Shares

In redeemable preference shares the company has to repay the capital amount of the preference shares to the shareholders on the maturity date. Usually the Companies Act has stated the guideline of redemption to be 20 years except the infrastructure companies issued preference shares has to be redeemed within period of not exceeding 30 years.

Irredeemable reference shares do not have to repay the principal amount of preference shares and Section 55 of the Companies Act, 2013 does not allow any company to issue preference shares which are irredeemable.

Author: Aathira Pillai,
Dr. D. Y. Patil College of Law, BLS LLB 4th year

Leave a Comment