Question

Discuss the type of shares which can be issued under the Companies Act, 2013, as amended to date.

Answer 1

As per Section 44 of the Companies Act of 2013, there are two types of shares- Preference Shares and Equity Shares (also known as Ordinary Shares).

• Preference Shares: Section 43 of the Companies Act,2013 defines Preference Shares to be featured by the following rights:
  1. Preference Shares entitle their holder the right to receive a dividend at a fixed rate or fixed amount.
  2. Preference Shares entitle their holder to a preferential right to receive repayment of the capital invested by them before their equity counterparts at the time of the company’s winding up.
• Equity Shares: Equity Shareholders have voting rights and control over the affairs of a company.
  As per Section 43 of the Companies Act 2013, an equity share is a share that is not a preference share. It does not possess any preferential right to the payment of dividends or the repayment of capital. The dividend rate is not fixed for equity shares and varies from year to year, depending on the amount of profit available for distribution after paying dividends to preference shareholders.