The share capital of a company is divided into shares, representing the bundle of rights and obligations of a shareholder.
1. Kinds of Share Capital (Section 43)
- Equity Share Capital: Represents ownership capital.
- With voting rights; or
- With differential rights as to dividend, voting, or otherwise.
- Preference Share Capital: Carries a preferential right to:
- Payment of dividend (fixed rate/amount) before equity shareholders.
- Repayment of capital upon winding up before equity shareholders.
2. Allotment of Shares
Allotment is the appropriation of a specific number of unissued shares to an applicant. A valid allotment requires:
- Filing a valid prospectus.
- Raising the Minimum Subscription (90% of the issue) under Section 39.
- Filing a return of allotment (Form PAS-3) with the ROC within 30 days.
3. Buyback of Shares (Section 68)
A company may purchase its own shares out of its free reserves, securities premium account, or proceeds of any shares. The buyback must be authorized by the AOA and a special resolution, and cannot exceed 25% of the total paid-up capital and free reserves in a financial year.