6 Write short notes on: a) Shares and its classification b) Meetings and its classification (a) Meaning and classification b) Meaning and classification)
- a) Shares and its classification
Section 2 (46) defines a share “as a share in the share capital of a company and includes stock except where a distinction between stock and share is expressed or implied”. This definition does not encompass the meaning of a share.
Classes of shares
The most common classes of shares are:
- Preference
- Equity or Ordinary
- Deferred or Founders’
A public company and a private company that is a subsidiary of a public company may not issue shares other than equity, preference and Cumulative Convertible Preference Shares (CCPS).
Preference shares
A preference share is one that carries the following two rights over holders of equity shares:
- A preferential right in respect of dividends at a fixed amount or at a fixed rate, and
- A preferential right in regard to repayment of capital on winding up.
Equity shares
‘Equity share’ means a share that is not preference share (Section 85). The rate of dividend is not fixed. The Board of Directors recommends the rate of dividend that is then declared by the members at the Annual General Meeting. Before recommending dividend on equity shares, the Board of Directors have to comply with the provisions of law as regards depreciation, transfer of a minimum amount to reserves, etc. The holders of equity shares have voting rights in proportion to the paid-up equity capital of the company (Section 87 (1)).
Cumulative Convertible Preference Shares (CCPs)
The Government of India vide its guidelines dated 19 August 1985 permitted issue of another class of shares by public limited companies, called cumulative convertible preference shares.
Deferred or founder’s shares
A private company can issue shares of a type other than those discussed above (Section 90). Thus, it may issue what are known as deferred shares. As deferred shares are normally held by promoters and directors of the company, they are usually called founder’s shares.
Non-voting shares
‘Non-voting shares’ as the term suggests are shares that carry no voting rights. These are contemplated as altogether a different class of shares which may carry additional dividends in lieu of the voting rights. The Companies (Amendment) Act, 2000, provided for issue of such type of equity shares under Section 86.
Sweat equity shares
The Companies (Amendment) Act, 1999, allowed issue of sweat equity shares subject to fulfillment of certain conditions. The new Section 79A was inserted for this purpose
- b) Meetings and its classification
Section 291 empowers the Board of Directors to manage the affairs of the company. In this context, meetings of shareholders and directors become necessary. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting; (ii) Annual General Meeting; (iii) Extraordinary General Meeting; and (iv) Class Meetings.
Statutory meetings (Section 165)
The most important legal provisions regarding statutory meetings are:
It is required to be held only by a public company having share capital. A private company or a public company registered without share capital is under no obligation to hold such a meeting.
It must be held within a period of not less than one month and not more than six months from the date on which the company is entitled to commence business.
At least 21 days before the day of meeting, a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting.
Annual general meeting (AGM) (Sections 166-168)
As the name signifies, this is an annual meeting of a company. The provisions relating to this meeting are:
Every company, whether public or private, having a share capital or not, limited or unlimited must hold this meeting.
The meeting must be held in each calendar year and not more than 15 months shall elapse between two meetings. However, the first AGM may be held within 18 months from the date of its incorporation and if such general meeting is held within that period, it need not hold any such meeting in the year of its incorporation or in the following year. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar, who may so allow for any special reason.
The meeting must be held
- On a day that is not a public holiday
- During business hours
- At the registered office of the company or at some other place within the city, town or village in which the registered office is situated. (Section 166 (2)).
Extraordinary Meeting (EGM) Section 169
Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs. The legal provisions as regards such meetings are:
EGM is convened for transacting some special or urgent business that may arise in between two AGMs, for instance, change in the objects or shift of registered office or alteration of capital. All business transacted at such meetings is called special business. Therefore, every item on the agenda must be accompanied by an ‘Explanatory Statement’.
An EGM may be called by:
- Directors of their own accord
- Directors on requisition
- Requisitionists themselves
- The Tribunal.
The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. A shorter notice may, however, be held valid if consent is accorded thereto by members of the company holding 95 percent or more of the voting rights (Section 171).
Class Meetings
A company has two classes of shares – equity shares and preference shares. The class meetings are held for these different classes of shareholders, as and when their rights are affected.
