Kinds of Shares capital under Company Law

Shares are defined under Section 2(84) of the Companies Act, 2013, as share in the share capital of a company and includes stocks. Shares are issued
Shares are defined under Section 2(84) of the Companies Act, 2013, as share in the share capital of a company and includes stocks. Shares are issued
Kinds of Shares Capital

Shares are defined under Section 2(84) of the Companies Act, 2013, as share in the share capital of a company and includes stocks. Shares are issued by companies to raise capital from investors. This capital is intended to further development and growth of the business of the company. A share represents the interest of a shareholder in the company, and this interest is measured for the purpose of liability and dividend. It attaches various rights and liabilities to the shareholder.

Shares are considered a type of security. Security is defined under Section 2(80) of the Companies Act, and references to securities as defined under section 2(h) of the Securities Contracts Act, 1956. The shares of any member in a company is considered as movable property according to Section 44 of the Companies Act, 2013 and are considered to be transferable in the manner provided by the articles of the Company.

      Section 45 of the Companies Act, mandates all companies to have a share which would ensure that the shares of the company is distinguished by a distinct number. However, if a share is held by a person who is entered as holder of beneficial interest in such share in the records of a depository, then the same would not be applicable to that extent.

Types of Share Capital:

As per Section 43 of the Companies Act, 2013, the share capital of a given company limited by shares are of two types, (a) Equity Share, and (b) Preference Share.

Equity Share Capital:

Equity Share Capital with respect to any company limited by shares means all share capital which is not preference capital, and references the portion of the company’s capital which is raised in exchange for a share of ownership in the company. Equity shares come with voting rights, or with differential rights as to dividend, voting or otherwise, as prescribed from time to time.

Types of Equity Shares based on Share Capital:

Based on Share Capital, Equity Shares can be classified as under : –

Authorized Share Capital:

Authorized Capital, also called nominal capital, is the maximum amount of capital which a company can raise to fund capital requirements through the issuance of equity shares. Each Company, through its Memorandum of Associations (“MoA”), requires to prescribe the maximum amount of capital that may be raised through the issuance of equity shares however, Companies cannot issue shares of the value more than the Authorized Capital.

Companies may increase the authorized share capital if required, through an Amendment via a resolution passed at a general meeting of the shareholders.

Issued Share Capital:

Issued Share Capital, refers to the portion of the Company’s Share Capital which is available for subscription to investors through the issuance of Equity Shares.  Issued Share Capital is required to be within the limit of the Authorized Share Capital, and cannot be more than the Authorized Share Capital, as stated in the MoA. The Issued Share Capital can be either equal to or less than the Authorized Share Capital.

Since, a company does not have to issue all of its Authorized Share Capital at once, it may further issue Share Capital in the future, depending on its financing requirements.

Unissued Share Capital:

This is the portion of the Authorized Share Capital that has not been issued and is not available for subscription to investors. It is essentially the difference between the Authorized Share Capital and the Issued Share Capital.

Subscribed Share Capital:

Subscribed Share Capital is the Issued Share Capital which has been subscribed to by investors. Once investors have subscribed to the Issued Capital. Capital is increased when investors have subscribed to the shares of the Company. Subscribed Shares can only be equal to or less than the issued share capital.

  • Reserve Share Capital:

Reserve Share Capital is the Capital which is reserved for the purposes of liquidating or winding up. A company may establish Reserve Capital upon a 3/4th Majority vote in favour of this special resolution. The Articles of Association cannot be altered to avail Reserve Share Capital at any time once they have been constituted. Reserve Share Capital cannot be used to obtain collateral for loans either, and is subject to the winding up of the Company to be available.

  • Called-up Capital:

Called-up Capital is the investor’s payment upon subscription to the Issued Share Capital.  Where, the capital paid by the investor is not paid in lumpsum, but rather, is paid in instalments. Therefore, called up capital is the portion of subscribed capital that the company demands the investor to pay upon subscription.

  • Paid- up Capital:

Paid-up Capital is the amount of money investors pay against its shareholdings in the Company. Where, Shareholders usually pay the entire amount at once, subscribed and paid-up capital are referred to the same.

  • Preference Share Capital:

Preference Share Capital, with respect to any company limited by shares means share capital having fixed rate of dividend and carry preferential rights over ordinary equity shares in sharing of profits and also claims over assets of the Company. Investors who buy preferential share capital are placed in higher priority where dividend declaration is concerned, and are the first to receive money at the time of winding up. Investing in preference share, does not give the investor a right to vote, unless the matter directly or indirectly affects them.

Preference shares capital, as per Section 43 of the Companies Act, 2013, means that part of the issued share capital of the company which carries or would carry a preferential right in respect of the payment of dividend, as a predetermined amount or an amount calculated at a fixed rate, and maybe subject to income tax.

Further, in the case of winding up of the company or repayment of capital, there exists a preferential right to repayment of the amount of capital paid up or deemed to have been paid up, regardless of a preferential right to payment of any fixed premium or premium on any fixed which is specified in the memorandum or articles of the company.

There are different sub-types in preference shares:

  1. Cumulative Preference Shares:

Cumulative Preference Shares give their shareholders the right to receive arrears on dividend before any dividend is paid to equity shareholders. For example, if the dividends on preference shares for the two years have not been paid due to market downturn, then preferential shareholders are entitled to receive dividend for those years in addition to the current one.

2. Non-cumulative preference shares:

Non-cumulative shares do not entitle their shareholders to claim any outstanding dividend. Such shareholders only earn a dividend once the company earns profits. No dividends are paid for the years of market downturn.

3. Convertible Preference shares:

Preference shares which are convertible are known as Convertible Preference Shares. Convertible Shareholders may convert their preference shares into equity shares after a specific period of time, provided that this conversion of shares is authorized by the Articles of Association of the company.


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