According to Section 2(84) of the Companies Act,2013, ‘share’ means a share in the share capital of a company and includes stock.


(a) A share is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities while the company is a going concern and, in its winding, up.

(b) A share is a right to participate in the profits made by a company, while it is a going concern.

(c) Section 44 of the Companies Act, 2013 provides that a share or debentures or other interest of any member in a company is a movable property transferable in the manner provided by the articles of the company,

(d) In India, a share is regarded as goods. According to the Sale of Goods Act, 1930, “Goods” means any kind of movable property other than actionable claim and money, and includes stock and shares.

(e) According to Section 45 of the Companies Act, 2013 every share in a company having a share capital shall be distinguished by its distinctive number but this provision shall not apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository.


Share Capital is of two kinds- Preference Share Capital and Equity Share Capital.

Preference Share Capital

Explanation to Section 43: Preference share capital means a part of share capital with a preferential right with respect to:

• Payment of dividends, it must carry a preferential right to fixed amount or amount calculated at a fixed rate, and

• As regards the capital, in the event of a winding up or other arrangement to repayment of capital, there must be a preferential right to be repaid the amount of the capital paid up on such share.

Section 47(2) states that every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shall be in proportion to his share in the paid-up preference share capital of the company:

Provided that the proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares.

Provided further that where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.


Cumulative and Non-Cumulative-

• Cumulative preference shares: the dividends are accumulated and therefore paid before paid before anything paid to equity shares.

• Non-Cumulative preference shares if company does not pay dividend in current year, claim preference shareholder is lost to that extent.

Convertible and Non-Convertible-

• Convertible preference shares possess an option or right whereby they can be converted into an ordinary equity share at some agreed terms and conditions.

• Non-Convertible preference shares do not have the option to convert but has all other normal characteristic of a preference share.

Participating and Non-participating-

• Participating preferences share has an additional benefit of participating in surplus profits or ‘surplus assets of the company apart from preferential dividend.

• The Non-participating preference share are those which are not entitled to participate in the ‘surplus profits’ or surplus assets” of the company. They are entitled to only a fixed rate of dividend.

Redeemable and Non-Redeemable

• Redeemable preference share has a maturity date on which date the company will repay the capital amount to the preference shareholders. The paying back of capital is called redemption dividend.

• Preferences share shall be redeemed within a period not exceeding 20 years (however infrastructure companies can issue preferences shares redeemable within a period not exceeding 30 years).

• Irredeemable Preference Share do not have any maturity date and are repayable only at the time of winding up of the company. However as per section 55 of the Companies Act, 2013 no company can issue irredeemable preference shares.


All share capital, not falling within the above description of preference capital, is equity share capital, which has no guaranteed amount of dividend but carries voting rights.

According to explanation(i) to Section 43 of the Companies Act, 2013 “equity share capital”, with reference to any company limited by shares, means all share capital which is not preference share capital.

Equity capital is also known as “Common Stock” or common share capital that represents ownership in a company. Common share capital is generally divided into units known shares. These unit holders are called equity shareholders. They are the real owners of the company and policy makers of the company. However, they do not have access to the day-to-day affairs of the company. They appoint their representatives called the Board of Directors to look after the affairs of the company.

Important characteristics of Equity Shares are given below:

1) Equity Shares have voting rights at all general meetings of the company. These votes have the effect of the controlling the management of the company.

2) Equity Shares have the right to share the profits of the company in the form of dividend (cash) and bonus shares. However, even equity shareholders cannot demand declaration of dividend by the company which is left to the discretion of the Board of Directors.

3) When the company is wound up, payment towards the equity share capital will be made to the respective shareholders only after payment of the claims of all the creditors and the preference share capital.

According to section 47, subject to the provisions of section 43, sub-section (2) of section 50 and sub-section (1) of section 188

(a) every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

Section 43 of the Companies Act, 2013 further provides for 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 be prescribed.


  • The Supreme Court in the case of Miheer H. Mafatlal vs. Mafatlal Industries Ltd. JT 1996 (8) 205 gave the following observations: According to Section 86, a company’s share capital can only be divided into equity share capital and preference share capital. The articles of association for the respondent corporation indicate two categories of shareholders.  Neither the Act nor the respondent-Articles companies of Association mention a different class of equity shareholders. It is true that the appellant has an equity stake. Therefore, he would be a member of the same class of equity owners whose meeting was ordered by the Company Court. Even though the Companies Act or the Articles of Association do not specifically mention such a class within the class of equity shareholders due to their distinct and competing interests with respect to other equity shareholders with whom they formed a wider class, a group of shareholders may argue that a separate meeting of such separately interested shareholders should have been called.
  • Preference shares are cumulative unless expressly stated to be non-cumulative and the same was held in Foster v. Coles Foster & Sons Ltd., (1906) 22 TLR 555 where it was observed that mere deletion of the word cumulative would not render the preference shares non – cumulative.


1. Miheer H. Mafatlal vs. Mafatlal Industries Ltd. JT 1996 (8) 205

2. Foster v. Coles Foster & Sons Ltd., (1906) 22 TLR 555 

3. Companies Act, 2013

4.Dr. Avtar Singh, “Company Law”, 7th Edition (2016), Eastern Book Company Publications.

5. N. D. Kapoor, “Elements of Company Law”, 30th Edition (2016), Sultan Chand & Sons. Publications.

6. C.R. Dutta, “Company Law”,7th edition (2016), Lexis Nexis Publications.

7. The Institute of Company Secretaries of India, Article “Share Cal and Debentures”, (2014)

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