How many types of the Capital in the Company

Capital introduction

An amount of money you used to start a business, to raise the big amount of the money a company issued shares and debentures, the amount raised by issuing the debentures become the part of dead capital.

Capital is of two types

• Share (share capital)
  • A share is the measure of interest in the company’s assets held by a share holder, it is a smallest and singlre unit of a company. It is defined in section 2(84) as
    • share means a share in the share capital of company and includes stock.
• Debentures ( debenture or dead capital)
  • Debentures are the borrowed capital of the company, the person who holds the debenture are known as “debenture holder” , interest can be paid to the debenture holder, regardless the company has earn profit.
• stock
  • it is a bundle of shares, where a person holds approx 10% of the shares are known as stock holders, stock may be from the multiple companies, share include stocks too.

Characterstics of the share capital

• Section 44 – it says that shares and debentures of any member transferable in a manner provided in the article of the company.
• Section 45 – Numbering of the shares under this section, it is provided that every share in the company having a share capital shall be distinguished by its distinctive number.
• Jus-in- rem

Types of share capital

• Equity share
  • share which does not confer preferential rights to its holder is known as equity share,They are entitled to a varying note of dividend depending upon the profits , they have voting rights in general meeting.
• Preference share
  • they have priority over equity shareholders to dividends, they carrying fixed rate of dividend. They have priority over the equity shareholders towards the repayment of capital in the event if winding up of the company.

Kinds of the share capital

• registered, authorised on nominal share capital in the section 2(8)
• issued share capital section 2(50)
• unissued share capital, the balance of nomianl capital remaining to the issued is called as unissued capital.
• subscribes share capital section 2(86)
• called up share capital section 2(15)
• Uncalled up share capital
  • it is the portion of the amount which is left after the called up share capital.
• Reserved share capital
  • it means that amount which is not collable by the company except in the event of the company being wound up.

According to section 88, it is mandatory to maintain a register of shareholders. A register of indicating separtely for cash loss of equity and prefernce share holder by each member residing in outside India. Every officer of the company who is in default shall be punishable with fine which shall not be less than 50,000 but which may extend to 3,00,000.

Types of the prefernce share capital

• comulative preference share
• non comulative preference share
• participative preference share
• non- participative preference share
• convertiable preference share
• non- convertable preference share
• redeemable preference share
• guraranteed preference share.

Issuance of the shares

• Initial public offering
  • when unlisted/ fresh companies issue the share in the market for the subscription. IPO is a process when on unlisted company sells news or existing securities and offer them to the public for the first time.
• further public offering
  • where an already listed company makes issue of the share to the public or an offer to the sale to the public are FPO.
• Private placement
  • section 42 defines a private or invitation to subsribe securities to a selected group of person by a company.
  • two essential conditions are
    • special resolution
    • private placement offer letter
    • maximum number of the member are 50.
• Right issue
  • section 62 when an issue of shares is made by an issuer ot its existing shareholders as on aparticular date fixed, which is called the “record date” are known as right issue.
  • Advantages
    • cost of complaince is less
    • simplest path for capital induction.
• Bonus issue
  • when an issuer makes an issue of share to its existening shareholders without any consideration based on the number of the shares already held by then as on record date, are bonus issue, according to section 63.
• Sweat equity shares
  • section 2(88) defines sweat equity share as an issued by the company to its directors or employees based on their skill or performance.
• share certificate
  • It is an intrument in writing which is a legal proff of the ownership of the number of shares estated in.
  • Condemns of share certificate
    • company name
    • details of the member
    • date of issue
    • serial number
    • shares holder( share issued)
    • nominal value of the share.
• share warrent
  • it is a negotiable instruement issued by the public limited company, it is a “document of the title” because the holder of the share warrent is entitled to the number of shares mentioned in it.
• Buy Back of shares
  • when company dont’t want to pay more taxes on the capital reserved , then it started purchasing its own shares so, that the capital reserved maintained and no need to pay the higher amount of taxes.
  • Objective of buy back of shares
    • unsued cash
    • tax gains
    • market perception
    • exist option
    • There essential condition for buyback of share
      • it shall be authorised by the article of the company
      • A company cannot withdraw the offer of buyback once it declared.
      • A company cannot used any money borrowed from the financial institution or banks.

Debentures section 2(30)

It defines as that it include debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on assets of the company or not.

Characteristics of Debentures

• A certificate is an acknowledgment by the compay of debt to a holder.
• Debenture is issued as certificate issued under companies common seal
• A debenture usually provide for a payment of a specified sum at specified date.
• A company shall not issue any debenture carrying any voting right.

Kinds of debentures capital

• On the basis of security
  • secured debenture
    • these sebenture carry a change on the same assets of the issuing company. The security of debentures may be of two types
      • fix charge – specified assets
      • floating charge – cover all assets
  • unsecured debentures
    • do not carry any security or charge on the company assets.
• on the basis of convertibility
  • convertible debenture
    • it shall be issued on special resolution passed by general meeting this conversion may be compulsory or optional at debenture holder description.
  • non-convertiable debenture
    • ones remains debenture they are non- convertable.
• on the basis of performancy
  • redeemable
    • have the fearure to be reemed at specified date
  • irredeemable
    • do not have a specific maturity date.
• on the basis of negotiability
  • registered debenture
    • the details of these debenture holders are registered in the company record only debenture holder can redeem these debentures hence, they are not freely transferable.
    • bearer debenture
    • companies do not registered detail debenture holder they can be redeem by the person who owning them without their identity being checked.
• on the basis of priority
  • first mortgage debenture
    • debenture holder get their money before all other categories.
  • second mortgage debenture
    • these debenture repaid only after the first mortgage debenture is satisfied.

Difference between shares and debentures

Share	Debentures
1) shares are the owned fund of the company. 2) shares represents the capital of the company. 3) shareholders of the company to be treated like a contributor. 4) shareholders gets the dividend. 5) share can nver be converted into debentures. 6) dividend is payable only out of profits. 7) sharholders have the voting rights.	1) debentures are the borrowed fund of the company. 2) debentures represents the debts of the company. 3) debenture holder of the company to be treated like a creditor. 4) debentures holders gets the interests. 5) debentures can be converted into shares. 6) interest is paid to the debenture holder even if their is no profit. 7) debenture holders did not have voting rights.

Section 88 company has to maintain the register under section 88.

Role of courts in protection of creditor and shareholders

• The official courtroom ensures the interest of the creditors under protection law.
• The court utilities the process of the enactment, by the legislation to assist the creditors.
• Case: R v/s kylsant
  • prospectus was wrongly taken, it was written something but the reality was something else.
• Case: Glass v/s atkin
  • 2 petitioner claims that people were selling the company’ s assets.
• Case : Bharat insurance v/s kanhiya lal
  • utravires act – more loan taken by company.

Two types of suit 1) derivative action 2) class action

Role of courts

• Derivative action
  • it is a mechanism which unables the shareholders of the company to bring an action on behalf of the company against the third party before a regular civil court. A derivative action is brought by a shareholder in the following instance.
    • Ultravires – beyond the authority
    • fraud on minority
    • required resolution
    • To saveguard the interest of the company.
• class action
  • when one shareholder on behalf of one or more of the shareholders of the same kind have been allowed by the court on the grounds of persons having same “locus standi.”( right to stand in front of court)
  • order first rule eight of the CPC, talks about class action.

Referece: original note written by Riya tiwari of LLB of united university prayagraj uttar pradesh.