SHARES:

A unit of ownership that represents an equal proportion of a company’s capital. It entitles its holder (the shareholder) to an equal claim on the company’s profits and an equal obligation for the company’s debts and losses.
Two major types of shares are (1) ordinary shares (common stock), which entitle the shareholder to share in the earnings of the company as and when they occur, and to vote at the company’s annual general meetings and other official meetings, and (2) preference shares (preferred stock) which entitle the shareholder to a fixed periodic income (interest) but generally do not give him or her voting rights.

TYPES OF SHARES :

 Ordinary shares

Ordinary shares are the most common type. They carry one vote per share and they entitle the owner to participate equally in the company’s dividends. If the organisation is wound up, the proceeds are again allocated equally.

Ordinary shares carry voting rights but rank after preference shares with regards to rights to capital, in the event that the business is wound-up. It’s possible to break these shares down into different classes, which will be explained later.

2. Non-voting shares

Non-voting ordinary shares usually carry no right to vote and no right to attend general meetings. These shares are usually given to employees so that remuneration can be paid as dividends for the purposes of tax efficiency for both parties.

3. Preference shares

Preference shares entitle the owner to receive a fixed amount of dividend every year. This is received ahead of individuals that hold ordinary shares. It is also usually as a percentage of the nominal value (the value stated when the shares were issued).

4. Redeemable shares

Redeemable shares are issued on the terms that the company will/may buy them back at a future date. This is either fixed or, set at the director’s discretion. It’s usually done with non-voting shares given to employees so that if the employee leaves, the shares can be taken back at their nominal value.

Transfer and Transmission of Shares

Shares are like any other goods. A purchaser gets no better title than the seller .

The capital of a company is divided into a number of undividable units of a preset amount called ‘shares ‘. The Supreme Court of India in CIT v. Standard Vacuum Oil Co, observed, that a share is an interest measured by a sum of money and made up of diverse rights conferred on it.  It implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and until the share is issued the person does not exist. 

Transferability is an important feature of a share in a company registered under the Companies Act, from which emanates another feature of a company- perpetual succession. It endows a company with perpetual and uninterrupted existence. Upon incorporation, a company acquires its own independent legal personality and legal entity in the company. Section 82  states that the share shall be a movable property and transferable in a manner provided by the articles of the company. It has, however, been consistently held by the courts that subject to restrictions imposed by the articles, a shareholder is free to transfer shares to a person of his own choice and that the articles cannot put a complete ban or unreasonable restriction on the transfer. While shares in a private company are not freely transferable and are subject to the restrictions imposed by the articles of the company, shares in a public company are freely transferable  . There are different types of transfer such as transfer of share by gifts, in case of joint holdings and transfer in private companies. 

Transfer of shares is a transaction resulting in a change of share ownership. A shareholder, whether in public or private company, has a property in his share which he has a right to dispose of, subject only to any express restriction which may be found in the articles of the company .

Transmission is the automatic process; when a shareholder dies, his shares immediately pass to the personal representatives or, if a member is declared bankrupt, their shares will vest in the trustee in bankruptcy .

The Depositories Act, 1996 provides for an alternate mode of effecting transfer of shares. Investors have the choice of continuing with the existing share certificates (i.e., in physical form) and adopt the existing mode of effecting their transfer. Every depository is registered with the SEBI and receives a certificate of commencement of business on fulfillment of such conditions. Upon entry into the system, share certificates belonging to the investor will be dematerialized and their names entered in the books of participants as beneficial owners. The investor’s names in register of companies concerned will be replaced by the name of the depository as the registered owner of the securities. The investors will, however, continue to enjoy the economic benefits from the shares as well as voting rights on the shares concerned

HOW IS SHARE DIFFERENT FROM DEBENTURES:

BASIS FOR COMPARISON	SHARES	DEBENTURES
Meaning	The shares are the owned funds of the company.	The debentures are the borrowed funds of the company.
What is it?	Shares represent the capital of the company.	Debentures represent the debt of the company.
Holder	The holder of shares is known as shareholder.	The holder of debentures is known as debenture holder.
Status of Holders	Owners	Creditors
Form of Return	Shareholders get the dividend.	Debenture holders get the interest.
Payment of return	Dividend can be paid to shareholders only out of profits.	Interest can be paid to debenture holders even if there is no profit.
Allowable deduction	Dividend is an appropriation of profit and so it is not allowed as deduction.	Interest is a business expense and so it is allowed as deduction from profit.
Security for payment	No	Yes
Voting Rights	The holders of shares have voting rights.	The holders of debentures do not have any voting rights.
Conversion	Shares can never be converted into debentures.	Debentures can be converted into shares.
Repayment in the event of winding up	Shares are repaid after the payment of all the liabilities.	Debentures get priority over shares, and so they are repaid before shares.
Quantum	Dividend on shares is an appropriation of profit.	Interest on debentures is a charge against profit.
Trust Deed	No trust deed is executed in case of shares.	When the debentures are issued to the public, trust deed must be executed.