Presentation On business law

Cp 302
Topic Issue Of Right Shares.

Presented To :Miss LuraiRongmai Asst. Professor

Presented By :Subir Dey (12)

DEPERTMENT OF BUSINESS ADMINISTRATION ASSAM UNIVERSITY

SHARES
Share may be defined as an interest in the company entitling the owner thereof to receive proportionate part of the profits, if any, and of a proportionate part of the assets of the company upon liquidation. A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in the company becomes one of the owners of the company.

Thus, a share is an indivisible unit of capital.

Features & characteristics

The main features of shares are as stated below :1. A share is not a sum of money, but is an interest measured in a sum of money and made up of various rights, contains in the contract. Farwell J. in Borlands Trustee v. Steel Bros. & Co. 2. A share is an interest having a money value and made up of diverse rights specified under the articles of association. Commissioner of Income Tax v. Standard Vacum Oil Co. 3. The holder of a share has certain rights, duties and liabilities, as stated in the companies act and in the memo and articles of the company. 4. A share is transferable and heritable subject to regulations framed in the articles of association of the company.

5. The shares or other interest of a member in a company is movable property, transferrable in the manner provided by the articles of the company.- Sec. 82. 6. The shares must be numbered so as to distinguish them from one another.- Sec. 83.

Classification of shares:
The Companies Act of 1956 provides that after the commencement of the Act, there can be only two types of shares capital, viz., Equity Shares Capital, and Preference Share Capital.

Equity Shares Capital

By the virtue of Section 85(2) of the companies Act the term Equity share capital means with the reference to any such company all share capital which is not preference share capital. The Equity share also known as ordinary shares.

Preference Share Capital

By the virtue of Section 85(1) of the companies Act the term Preference share capital means with the reference to any company limited by share, affixed rate of dividends or premium is payable over the equity share holders or ordinary shareholders as specified in the memorandum of association or article of association. Even in case of winding up of the company the preference shareholders are entitled to be paid at top priority.

What are Rights Shares

Companies often require additional funding for their working capital and expansion plans. They raise funds sometimes by selling additional equity shares on a rights basis to its shareholders. These shares are called Rights Shares. They are called rights because shareholders, by the virtue of their existing share-holding have a prior right to buy these shares. The number of rights shares offered to each shareholder is proportional to the equity shares he owns. Rights share are offered at par or at a premium. Premium is the difference between the issue price and the face value of the share. In order to make the issue attractive, the price of the rights share is fixed at a level far below the current market price. The issue of the rights share increases the equity capital of the company but does not dilute the shareholders proportionate ownership of it.

Steps for issuing right shares 1st Step: Right shares must be in ratio of equity shares of existing
shareholders.

2nd Step: Right Issue by 15 days notice

Right shares will be issued with 15 days notice. This notice will be offer. Existing shareholders can either accept or reject this offer.

3rd Step: Right shares issue must not be opened more than 60 days
under SEBI guidelines.

Provision of 81 will not apply on private company. This rule will not also apply on conversion of debentures into shares.

Benefits of Issuing Right Shares 1. More control on existing shareholders

Because right shares are issued to existing shareholder, so there is no risk of losing of control of existing shareholders. Existing shareholders share will increase in company and they can take decision without any compromise with the principles of company. It is very helpful to achieve the missions of company.

2. No loss to existing shareholder

By issuing shares to existing shareholders, value of share will increase due to stability in controlling power of company. So, there will not be any loss to existing shareholders with right shares.

3. No cost for issuing shares to public

Company has not to give any invitation to public, so advertising cost and other new issue cost will decrease with right shares.

4. Helpful to increase the goodwill of company

It is also way to increase the goodwill and reputation of company in industry.

5. Capital formation

Company can get capital at any time without any delay because company can easily issue of shares to existing shareholders just sending right shares offer notice.