EQUITY SHARES - Accounts and Finance for Managers

Shares and Stock are synonymous in usage. Shares are the expression of smaller units of Share capital of the organization. The raising of equity share capital from the investors in various segments viz Application money, First call money and Subsequent calls money are collected subject to the capital clause of the Memorandum of Association of the organization.

After the issue, the share certificates are issued which normally depicts the expression of right of shares.

Right of Equity Shares:

Sec. 85(2) of the Companies Act, 1956 expresses the right of the equity shareholders who hold the equity shares

  • To vote
  • To control the management
  • To share the profits
  • To claim on the residual portion during the winding up
  • To exercise pre-emptive
  • To apply the court
  • To receive the copy of the statutory report, copy of the annual accounts
  • To apply the central government for AGM - failure on the part of the company
  • To apply company law board for Extraordinary general meeting

Sweat Security

  • It is one kind of Equity share, which was introduced in the Ordinance 1998,facilitating the companies to acquire the technical know-how, intellectual property through the issue of equity shares.
  • Definition
  • The equity shares which are issued at discount to employees and directors and consideration other than cash for Technical know-how, intellectual property are known as sweat security.

Normally the sweat security is issued by the companies in two different categories:

  • Sweat security which is issued at preferential pricing more specifically for employees
  • Sweat security which is issued at face value, that may be either at par or above par

Non Voting Shares

These type of equity shares never carry any voting rights. These type of shares are also eligible to enjoy the bonus issue and exclusive listing for the holding of the shares. When Two year Dividends are continuously missing, the nature of the non voting shares will automatically become as Voting shares. The Non voting shares are to be declared 20% dividend more than the ordinary dividend. The issue size of the Non voting shares should not exceed the maximum limit of the voting stock i.e. 25%.

Bonus Issue

This type of issue is merely considered as book entry in between the two different sources of long term finance viz Free Reserves and Equity Share capital. This type of issue is normally restricted to the companies which are having the partly paid equity shares. The bonus issue is permitted by making the partly paid up shares into fully paid shares. The bonus issue is normally decided in the board meeting.

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