# Kinds of Share Capital — Section 43

Under Section 43 of the Companies Act, 2013, the share capital of a company limited by shares shall be of two kinds:

## 1. Equity Share Capital (ESC)

Equity shares can be issued as:

Equity shares with voting rights (plain vanilla equity)
Equity shares with differential rights (DVR) — as to dividend, voting or otherwise

## 2. Preference Share Capital (PSC)

Preference shares carry preferential rights with respect to:

Payment of dividend — fixed amount or fixed rate
Repayment of capital — in case of winding up, before equity shareholders

## Important Notes

Note 1 — Deemed PSC:

Capital shall be deemed to be preference share capital even if such shareholder has the right to participate with non-preference capital (e.g., ESC), in addition to their preferential rights.

Note 2 — Default presumptions:

By default, preference shares are non-participating
By default, preference shares are cumulative (unpaid dividends accumulate)

## Applicability

Section 43 is NOT applicable to a Private Company where the MOA or AOA so provides.

Worked example

### Example 1

Example: XYZ Ltd issues preference shares carrying a fixed 8% dividend AND also giving the holder a right to participate in surplus profits along with equity shareholders. Are these preference shares?

Answer: Yes. As per Section 43, capital is deemed to be preference share capital even if the holder has the right to participate with non-preference capital, in addition to their preferential rights. The shares retain their PSC character.

### Example 2

Example: ABC Pvt Ltd's AOA states that Section 43 shall not apply. Can the company issue a third category of shares apart from equity and preference?

Answer: Yes. Section 43 does not apply to a private company if its MOA/AOA so provides. Hence, ABC Pvt Ltd can structure its share capital flexibly without being restricted to only equity and preference categories.

⚠️ Common exam mistakes

Assuming preference shares are participating by default — they are non-participating unless terms specify otherwise.
Treating shares with participation rights as equity — they remain preference share capital if they carry preferential rights.
Forgetting that Section 43 does not apply to private companies whose MOA/AOA opt out.
Confusing cumulative (default) with non-cumulative preference shares.

Bare-Act text Section 43 · Companies Act, 2013 · click to expand

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 in accordance with such rules as may be prescribed; and (b) preference share capital.

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Kinds of Share Capital (Section 43)

Worked example

⚠️ Common exam mistakes