Equity Share

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ShareBy

Aju K Raju

MBA II

MIIM


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DEFINITION

A share has been defined by the Indian

Companies Act, under sec.2(46) as A share isthe share in the Capital of the Company.

Meaning: Equity shares are those shares whichare ordinary in the course of company's business.

They are also called as ordinary shares. Theseshare holders do not enjoy preference regardingpayment of dividend and repayment of capital.Equity shareholders are paid dividend out of theprofits made by a company. Higher the profits,

higher will be the dividend and lower the profits,lower will be the dividend.


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Features of Equity Shares:

(1) Owned capital: Equity share capital is owned capital because itis the money of the shareholders who are actually the owners ofthe company.

(2)Fixed value or nominal value: Every share has fixed value or anominal value. For example, the price of a share is Rs. 10/- which

indicates a fixed value or a nominal value. (3) Distinctive number: Every share is given a distinct number just

like a roll number for the purpose of identification.

(4) Attached rights: A share gives its owner the right to receivedividend, the right to vote, the right to attend meetings, the right toinspect the books of accounts.


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(5) Return on shares: Every shareholder is entitled to a return onshares which is known as dividend. Dividend depends on the profitsmade by a company. Higher the profits, higher will be the dividendand vice versa.

(6) Transfer of shares: Equity shares are easily transferable, that is ifa person buys shares of a particular company and he does not wantthem, he can sell them to any one, thereby transferring the sharesin the name of that person.

(7) Benefit of right issue: When a company makes fresh issue ofshares, the equity shareholders are given certain rights in thecompany. The company has to offer the new shares first to theequity shareholders in the proportion to their existing shareholding. In case they do not take up the shares offered to them, thesame can be issue to others. Thus, equity shareholders get the

benefits of the right issue.


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(8) Benefit of Bonus shares: Joint stock companies which makehuge profits, issue bonus shares to their ordinary shareholders outof the accumulated profits. These shares are issued free of cost inproportion to the number of existing equity share holding. In case

they do not take up the shares offered to them, the same can beissued to others. Thus, equity shareholders get the benefits of theright issue.

(9) Irredeemable: Equity shares are always irredeemable. Thismeans equity capital is not returnable during the life time of a

company.

(10)Capital appreciation: The nominal or par value of equity sharesis fixed but the market value fluctuates. The market value mainlydepends upon profitability and prosperity of the company. High rateof dividend is paid with high rate of profit, the shareholders capital

is appreciated through an appreciation in the market value ofshares. (i.e. higher the rate of dividend, higher the market value ofthe shares.)


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PROCEDURE FOR ISSUE OF SHARES

(a) Issue of Prospectus: Whenever shares are to beissued to the public the company must issue aprospectus. Prospectus means an open invitation tothe public to take up the shares of the company thus a

private company need not issue prospectus. Even aPublic Company issuing its shares privately need notissue a prospectus. However, it is required to file aStatement in lieu of Prospectus with the register ofcompanies. The Prospectus contains relevant

information like names of Directors, terms of issue, etc.It also states the opening date of subscription list,amount payable on application, on allotment & theearliest closing date of the subscription list.


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(b) Application of Shares: A person intending tosubscribe to the share capital of a company has

to submit an application for shares in theprescribed form, to the company along with theapplication money before the last date of thesubscription mentioned in the prospectus.

Over Subscription: If the no. of shares appliedfor is more than the no. of shares offered to thepublic then that is called as over Subscription.

Under Subscription: If the no. of shares appliedfor is less then the no. of shares offered to thepublic then it is called as Under Subscription.


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(c) Allotment of Shares: After the last date of thereceipt of applications is over, the Directors,

Procide with the allotment work. However, acompany cannot allot the shares unless theminimum subscription amount mentioned in theprospectus is collected within a stipulatedperiod. The Directors pass resolution in theboard meeting for allotment of shares indicatingclearly the class & no. of shares allotted with thedistinctive numbers. Then Letters of Allotmentare sent to the concerned applicants. Letters of

Regret are sent to those who are not allottedany shares & application money is refunded tothem.


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Partial Allotment: In partial allotment the

company rejects some application totally,

refunds their application money & allots the

shares to the remaining applicants.

Pro-rata Allotment: When a company makes

a pro-rata allotment, it allots shares to all

applicants but allots lesser shares then

applied for E.g. If a person has applied for

three hundred shares he may get twohundred shares.


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(d) Calls on Shares: The remaining amount of

shares may be collected in installments as laiddown in the prospectus. Such installments are

called calls on Shares. They may be termed as

Allotment amount, First Call, Second Call, etc.

(e) CallsinArrears: some shareholders may not

pay the money due from them. The outstanding

amounts are transferred to an account called up

as Calls-in-Arrears account. The Balance ofcalls-in-arrears account is deducted from the

Called-up capital in the Balance Sheet.


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(f) CallsinAdvance: According to sec.92 of

the Companies Act, a Company may if so

authorized by its articles, accept from a

shareholder either the whole or part of the

amount remaining unpaid on any shares held

by them, as Calls in advance. No dividend ispaid on such calls in advance. However,

interest has to be paid on such calls in

advance.


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TERMS OF ISSUE OF SHARES:

A limited company may issue the shares on

following different terms.

(a) Issue of Shares for Consideration other thancash or for cash or on capitalization of reserves.

(b) Issue of Shares at par i.e. at face value or atnominal value.

(c) Issue of Shares at a Premium i.e. at morethan face value.

(d) Issue of Shares at a Discount i.e. at less thanthe face value.


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Equity Share

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