Concept
of share and share capital
Shares : shares
means allotted portion of share capital of company. Each share in a company is
valued at rupees hundred. Investors are known as shareholders, who take risk of
company operation and its performance. They get income on their investment on
shares in terms of dividend from the company which is part of the profit of the
company. Shares of a company may be classified as :
1.equity share :In
general ,shares which are not preference shares, are equity shares. The holders
of these shares have not preferential right in the payment of annual dividend
and repayment of their investment. Equity shareholder having voting right in
the election of the member of board of directors, therefore they can
participate in the management of company.
2. preference
share: preference shares are those shares, which carry a preferential right
firstly as to payment of annual dividend and secondly as to the return of
capital when company is wound up. These shares carry a preferential right of
dividend at a fixed rate before any dividend paid to equity share holders.
However ,preference shareholders having no voting rights in the election of
board of directors.
Features of
equity shares :
a. participation in management: Equity shareholder
having voting right in the election of the member of board of directors,
therefore they can participate in the management of company.
b. fixed fund: Equity share capital is of
fixed fund up to the existence of the company .therefore, the company can
mobilize such fund in long term profitable projects.
c.no fixed dividend :The amount of annual
dividend payable to the equity shareholder depends upon the volume of profit.
If the company earned no profit ,there is no obligation to pay dividend .
d. transferability of shares: Equity
shares of public limited company can easily transferable from one person to
another without any pre-permission from the company management.
e. no collateral security to issue: For
issue of equity shares ,it is not necessary for a company to keep it’s any
assets as a mortgage or security.
f. good scope of investment : the face
value of equity share is only rupees hundred and there is also voting right
vested to such share holder . therefore it is taken as a good scope of
investment ,even to the small investors.
Difference between equity share and
preference share
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Basis
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Equity shares
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Preference shares
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Concept
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Ordinary shares means a share other than a preference
share.
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preference shares are those shares, which carry a
preferential right firstly as to payment of annual dividend
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Participation in management
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The shareholder of equity shares have voting rights
and participate in the management of company.
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Preference shares have no voting right in the
election of board member.
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Payment of dividend
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Equity shareholders will get annual dividend on the
profit of company only after distribution to preference shareholders.
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Preference shareholders have preferential right to
get annual dividend before distribution to equity share holders.
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Rate of dividend
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There is no any fixed rate of annual dividend.
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A fixed rate of annual dividend is paid to preference
shareholder.
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Conversion
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These shares cannot be converted into converted into
other securities.
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On the basis of term of issue a preference shares may
be converted into ordinary shares
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Redemption
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The amount of such shares will be repaid to investors
only at the liquidation of the company.
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In case of redeemable preference, capital investment
will be repaid at the expiry of predetermined time.
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Share capital : share
capital is known as own capital and it is the primary source of collecting
amount for the company. In other words, share capital means the capital raised
by a company by issue shares. According company act 2063 share is the divided
unit of share capital of the company. Share capital of company is divided into
certain fixed number of units of hundred or rupees divisible of ten each. These
units are known as shares which represents the shares in the capital of
company. The person or institution holding some units of shares is called
shareholders.
In the process of issue of shares the following terms
should be taken into consideration
1.Authorized
capital : it is also known by registered capital of the company. It is the
nominal units of share capital which the company is authorized to issue by its
memorandum of association. This is the maximum capital which company can have
in its life time. For instance ,the share capital of A. ltd is rs 10,000,000
divided into 100,000 shares of 100 each.
2.Issued capital
:it is the part of authorized capital that is offered to the public for
subscription. A company does not issue all the authorized capital at a time but
keeps unissued for future requirement. For instance , A ltd. issued 50,000
shares (i.e. 50% of 100,000 shares) of rs. 100 each
3.Called up
capital : it is the part of issued capital which is actually called up from
the public on installment. A company is not
allowed to collect all the issued value of shares at a time; it should
be collected in the installment like as a share application, share allotment
and shares calls. For instance , A ltd. Issued 50,000 shares of 100 each but
called up capital value maybe be rs 25 on application, 50 on allotment and 25
on first and final call, as it is published in prospects.
4.suscribed
capital :it is part of issued and called up capital which has been applied
by the public for getting shares of the company. In subscribed capital there is
three possibilities i.e. equal subscription, under subscription and over
subscription. For instance , A ltd .issued 50,000 shares of 100 and if all
shares are taken up by the public then subscribed capital will be equal to
share capital.
5.Paid up
capital :it is the part of called up capital which is actually receive in
cash as a capital from shareholder. If all the called up capital has been
received, paid up capital will be equal to called up capital. When any part of
called up capital is not received that is known as calls in arrears and in such
situation, paid up capital will be called up capital minus calls in arrear.
