SHARE CAPITAL:

Share capital (shareholders’ capital, equity capital, contributed capital, or paid-in capital) is the amount invested by a company’s shareholders for use in the business. When a company is created, if its only asset is the cash invested by the shareholders, the balance sheet is balanced on the right side through share capital, an equity account.

Share capital is a major line item but is sometimes broken out by firms into the different types of equity issued. This can represent common stock and preferred stock, the latter including the par value of the stock.

PREFERENCE SHARE CAPITAL:

As per Section 43 of the Companies Act, 2013 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;

(b) repayment, in the case of a winding up or repayment of capital

The issuance of preference shares can be a very advantageous tool where the Company doesn’t intend to loose ownership or control but at the time is in need of funds as well. In this write, up we shall discuss about the procedure to issue preference shares by the Company:

Procedure:

• Check whether the issuance of preference Shares is authorised under Articles of Association or not. If not, amend the articles with respect to issuance and redemption of preference shares.
• Draft Notice of Extra Ordinary General Meeting along with an Explanatory Statement pursuant to Section 102 of Companies Act, 2013 which shall state all the material facts including the following:

1. the size of the issue and number of preference shares to be issued and nominal value of each share;
2. the nature of such shares i.e. cumulative or non – cumulative, participating or non – participating , convertible or non – convertible
3. the objectives of the issue;
4. the manner of issue of shares;
5. the price at which such shares are proposed to be issued;
6. the basis on which the price has been arrived at;
7. the terms of issue, including terms and rate of dividend on each share, etc.;
8. the terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion;
9. the manner and modes of redemption;
10. the current shareholding pattern of the company;
11. the expected dilution in equity share capital upon conversion of preference shares.

• Further, the resolution proposing the issuance of preference shares shall contain particulars in respect of the following matters:

1. the priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares;
2. the participation in surplus fund;
3. the participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid;
4. the payment of dividend on cumulative or non-cumulative basis.
5. the conversion of preference shares into equity shares.
6. the voting rights;
7. the redemption of preference shares.

• Call Board Meeting for the purpose of convening Extra Ordinary General Meeting and other inter alia purposes w.r.t. issuance of preference shares.
• Convene the Extra Ordinary General Meeting and pass the requisite Special Resolution.
• File Form MGT-14with ROC within 30 days of passing of special resolution.