# Kinds of Share Capital

## Meaning of 'Share' — Section 2(84)

Share means a share in the share capital of a company and includes stock.

## Share vs Stock

Aspect	Share	Stock
Unit	Smallest unit of capital	Bundle of fully paid shares
Denomination	Definite number, fixed face value	Lump-sum, no face value
Original Issue	Issued directly	Cannot be issued originally — obtained only by conversion
Conversion	Fully paid shares can be converted into stock	—

Note: Only a limited company with share capital and authorised by its Articles may convert fully paid-up shares into stock.

## Two Kinds of Share Capital

### 1. Equity Share Capital

Share capital other than preference share capital. It can be:

Ordinary Equity Shares — equal voting rights (plain vanilla equity).
Equity Shares with Differential Rights (DVRs) — different rights as to dividend, voting, or otherwise.

### 2. Preference Share Capital

That part of share capital which carries (or would carry) a preferential right in respect of:

Dividend at a fixed rate/agreed percentage; and
Repayment of capital at winding up (at face value or with agreed premium), as per MOA/AOA.

## Key Presumptions about Preference Shares (Unless AOA states otherwise)

Default Position	Meaning
Cumulative	Unpaid dividends accumulate and are payable in future years
Non-Participating	No share in surplus profits beyond fixed dividend
Non-Convertible	Cannot be converted into equity unless AOA permits

## Quick Memory Aid

"Preference shares are CNN by default" — Cumulative, Non-participating, Non-convertible.

Worked example

### Example 1

Example: ABC Ltd has 9% Preference Shares of ₹100 each. In FY 2023-24 the company did not declare any dividend. In FY 2024-25 it declares a dividend. How much must be paid to preference shareholders before equity?

Answer: Since preference shares are presumed cumulative (unless AOA states otherwise), the arrears of 9% for FY 2023-24 PLUS the current year's 9% must be paid before any equity dividend. So 18% of face value is paid before equity gets anything.

⚠️ Common exam mistakes

Assuming preference shares are non-cumulative by default — they are cumulative unless the AOA expressly says otherwise.
Treating preference shareholders as having no surplus rights at all — they may participate if AOA / terms permit (participating preference).
Confusing share with stock — stock cannot be issued originally and is only obtained by conversion of fully paid shares.

Bare-Act text Sections 2(84), 43 · Companies Act, 2013 · click to expand

Section 2(84) – 'share' means a share in the share capital of a company and includes stock. Section 43 – The share capital of a company limited by shares shall be of two kinds, namely: (a) equity share capital — (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise; and (b) preference share capital.

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Kinds of Share Capital - Equity and Preference

Worked example

⚠️ Common exam mistakes