Business Law – Shares

Through the course of time, Business Law has evolved in the field of the division and flexibility in transferability of the ownership of a company. Each shareholder is considered an owner of the company. The degree of ownership depends on the number of shares each individual buys.

Any kind of shares can be issued in accordance with the company’s articles of association. The articles of association are a set of guidelines, which provide the rules for buying, selling and transferring different types of shares. The articles of association also mention the types of shares, which could be transacted by the company. Ordinary shares constitute the biggest amount of shares, but special types of shares like the alphabet shares also exist.

●      Share capital is considered as the total amount of money a company owns plus the total valuation of its assets in terms of money.

●      Share capital is divided into shares.

●      Shares are valued in terms of money.

●      In other words, the amount of money collected by the company from its consumers to contribute to its capital is collectively known as share capital and individually known as shares.

●      A share contains bundles of rights and obligations contained in the articles of association.

●      A share can be considered as an interest measured by a sum of money.

●      A person who invests in the shares of a company contributes to partial ownership of the company.

●      The degree of ownership of the company of a shareholder is directly proportionate to the number of shares the individual buys.

Types of Shares                

According to the section 85 of the Companies Act, 1956, the share capital of a company consists of two kinds of shares −

●      Preference shares

●      Equity shares

Preference Shares

As per section 85(1) of the Companies Act, 1956, a share is considered as a preference share if it carries the following preference rights −

●      Before paying dividends to equity shareholders, the payment of dividend should be at fixed rate.

●      Before the payment to the equity shareholder, the capital must be returned at the time of winding up of the company.

No voting rights are given to the shareholders for the internal affairs of the company. However, the shareholders can enjoy voting rights in the following situations −

●      If dividend is outstanding for more than two years in case of cumulative preference shares

●      If dividend is outstanding for more than three years in case of non-cumulative preference of shares

●      On resolution of winding-up

●      On resolution of capital reduction

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