“Share” means a share in the share capital of a company and includes stock. This article talks about equity share capital under The Companies Act, 2013.
Equity share capital
The share capital of a company limited by shares shall be of two kinds, namely:—
a. Equity share capital
b. Preference share capital
“Equity share capital”-
with reference to any company limited by shares, means all share capital which is not preference share capital.
The Equity share capital—
i. with voting rights; or
ii. with differential rights as to dividend, voting or otherwise in accordance with such rules as may prescribed.
These differential rights may have difference related to dividend, voting or otherwise in accordance with rules. The term otherwise bring scope for innovation with in limit of rules. It may because of difference related to managing control, power to appoint director, or power to appoint proxy and so on.
i. “equity share capital”, with reference to any company limited by shares, means all share capital hence not preference share capital;
ii. “preference share capital”, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—
a. payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and
b. repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;
iii. capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or both of the following rights, namely:—
a. that in respect of dividends, in addition to the preferential rights to the amounts specified in sub-clause (a) of clause (ii), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid;
b. that in respect of capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified in sub-clause (b) of clause (ii), it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.
Equity Shares With Differential Rights
1. No company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely:-
a. the articles of association of the company authorizes the issue of shares with differential rights;
b the issue of shares thus authorized by an ordinary resolution passed at a general meeting of the shareholders:
Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot ;
c. the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share capital including equity shares with differential rights issued at any point of time;
d. the company having consistent track record of distributable profits for the last three years;
e. the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it decided to issue such shares;
f. the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;
g. the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government;
Provided that a company may issue equity shares with differential rights upon expiry of five years from the end of the financial Year in which such default was good.
h. the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934 , the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.
2. The explanatory statement to annex to the notice of the general meeting or of a postal ballot shall contain the following particulars, namely:-
a. the total number of shares to issue with differential rights;
b. the details of the differential rights ;
c. the percentage of the shares with differential rights to the total post issue paid up equity share capital including equity shares with differential rights issued at any point of time;
d. the reasons or justification for the issue;
e. the price at which such shares thus proposed to issued either at par or at premium;
f. the basis on which the price has arrived at;
g. Private Placement/Preferential issue/Public issue
i. in case of private placement or preferential issue-
- details of total number of shares proposed to allot to promoters, directors and key managerial personnel;
- details of total number of shares proposed to allot to persons other than promoters, directors and key managerial personnel and their relationship if any with any promoter, director or key managerial personnel;
ii. in case of public issue – reservation, if any, for different classes of applicants including promoters, directors or key managerial personnel;
h. the percentage of voting right which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
i. the scale or proportion in which the voting rights of such class or type of shares shall vary;
j. change in control, if any, in company that may occur consequent to issue equity shares with differential voting rights;
k. diluted Earning Per Share pursuant to the issue of such shares, calculated in accordance with the applicable accounting standards;
l. pre and post issue shareholding pattern with voting rights of listing agreement issued by Security Exchange Board of India.
3. The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice–versa.
4. The Board of Directors shall, inter alia, disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the following details, namely:-
a. the total number of shares allotted with differential rights;
b. the details of the differential rights relating to voting rights and dividends;
c. the percentage of the shares with differential rights to the total post issue equity share capital with differential rights issued at any point of time and percentage of voting rights which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
d. the price at which such shares have thus issued;
e. the particulars of promoters, directors or key managerial personnel to whom such shares have issued;
f. change in control, if any, in company consequent to the issue of equity shares with differential voting rights;
g. diluted Earning Per Share pursuant to issue of each class of shares, calculated in accordance with applicable accounting standards;
h. pre and post issue shareholding pattern along with voting rights in format specified under sub-rule (2) of rule 4.
5. The holders of the equity shares with differential rights shall enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares thus entitle to, subject to the differential rights with which such shares have thus issued.
6. Where a company issues equity shares with differential rights, the Register of Members shall contain all the relevant particulars of the shares so issued along with details of the shareholders.
For the purposes of this rule it hereby clarified that equity shares with differential rights issued by any company under the provisions of the Companies Act, 1956 (1 of 1956) and the rules made thereunder, shall continue to regulated under such provisions and rules.