Share capital is the money that is contributed by the shareholders of a company. Share capital may be issued either for cash or for consideration other than cash.
Types of share capital
- A company can issue equity shares or preference shares;
- The equity shareholders may have full voting rights or limited voting rights, differential entitlements to dividend, etc.;
- Preference shares can be issued for a period of not more than 20 years;
- Preference shares may be Convertible/ Non-Convertible, Cumulative/Non-Cumulative, Participating/Non-Participating or a combination thereof.
Further issue of capital
A company may raise its share capital by:
- offering rights shares to its existing shareholders on proportionate basis;
- offering shares to its employees under an ESOP;
- issuing bonus shares to its existing shareholders (but there will not be any additional inflow of cash);
- conversion of securities such as debentures, preference shares, etc for which such right, optional or compulsory, has been provided;
- making a preferential offer or a private placement of shares subject to the required approvals.
Reduction of capital
A company may also elect to buy back its equity shares with the approval of its Board of Directors and its shareholders
