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Management Notes

Difference between Share & Stock

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Share

A share is defined as the smallest division of the share capital of the company which represents the proportion of ownership of the shareholders in the company. The shares are the bridge between the shareholders and the company. The shares are offered in the stock market or markets for sale, to raise capital for the company. The shares are movable property which can be transferred in a manner specified in the Articles of Association of the company.

The shares are mainly divided into two categories: Equity shares and Preference shares.

Equity shares are the common shares of the company which carries voting rights while Preference shares are the shares which carry preferential rights for the payment of dividend and also for the repayment of capital in the event of winding up of the company.

The shares of a company can be issued in three ways:

  • Par
  • Premium
  • Discount

Stock

The stock is a mere collection of the shares of a member of a company in a lump sum. When the shares of a member are converted into one fund is known as stock. A public company limited by shares can convert its fully paid-up shares into stock. However, the original issue of stock is not possible. For the conversion of the shares into stock the following conditions are to be fulfilled in this regard:

  • The Articles of Association should specify such conversion.
  • The company should pass an Ordinary Resolution (OR) in the Annual General Meeting (AGM) of the company.
  • The company shall give notice to the ROC (Registrar of Companies) about the conversion of shares into stock within the prescribed time.

After the conversion of shares into the stock, Register of members of the company will show the stock held by each member, in place of shares held by them. Although, there should not be any change in the voting rights of the members. In addition to this, there is no effect on the transferability of shares. Instead, they can now be transferred in the fraction. They are of two types: Common Stock and Preferred Stock.

As per Section 61, Companies Act, 2013, the company can convert its shares which are fully paid up, into stock. A ‘Share‘ is the smallest unit into which the company’s capital is divided, representing the ownership of the shareholders in the company. A ‘Stock‘ on the other hand is a collection of shares of a member that are fully paid up. When shares are transformed into stock, the shareholder becomes a stockholder, who possess same right with respect to the dividend, as a shareholder possess.

All the shares are of equal denomination, whereas the denomination of stock differs. When one wants to invest in shares, he/she must be aware of the difference between shares and stock, along with the conditions, when shares are converted into stock. Take a read of the article, in which we have discussed, the entire concept of these two.

Share Stock
Meaning The capital of a company, is divided into small units, which are commonly known as shares. The conversion of the fully paid up shares of a member into a single fund is known as stock.
Is it possible for a company to make original issue? Yes No
Paid up value Shares can be partly or fully paid up. Stock can only be fully paid up.
Definite number A share have a definite number known as distinctive number. A stock does not have such number.
Fractional transfer Not possible. Possible
Nominal value Yes No
Denomination Equal amounts Unequal amounts

Management Notes

Mis Statement and Their Remedies

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Mis-Statements in Prospectus:

Mis-statements and false statements in the prospectus are instruments by which dishonest company promoters may practice fraud on the public money. In order to prevent this practice the law imposes certain duties and liabilities on those persons who are responsible for such issues.

If, however, the prospectus contains any mis-statement of a material fact or if the prospectus wants in any material fact, two types of liabilities will arise.

They are:

(1) Civil Liability

(2) Criminal Liability

Before discussing the above we are to know the liability which may arise for Untrue Statement. It is the duty of the authors of the prospectus to see that the prospectus does not contain any untrue statement which may mislead the public.

According to Sec. 65 of the Companies Act, Untrue Statement’ in connection with a prospectus shall deem to include:

(i) A statement which is misleading in the form and context in which it is included, and

(ii) An omission which is calculated to mislead.

In short, untrue statement means and includes any statement which is not only a false statement but also a statement which creates a wrong impression of actual fact. Concealment of material fact is also treated as mis-statement or untrue statement.

Now we are going to highlight the civil and criminal liabilities that may appear due to mis-statement in the prospectus:

(1) Civil Liability:

Sec. 62(1) of the Companies Act states that such persons are liable to pay compensation for any loss or damage which any person may suffer from the purchase of any share or debenture on the basis of the untrue statement. Consequently, a person who has suffered a loss may claim contribution from the others who were associated relating to issue of prospect until it appears that he was guilty of fraud while the others were not proved to be guilty.

(2) Criminal Liability:

According to Sec. 63(1) of the Companies Act, every person who has authorised the issue of a prospectus containing untrue statements shall be punishable with imprisonment which may extend to two years or with fine which may extend to Rs. 5,000 or both.

Penalty:

Sec. 68 of the Companies Act provides that a person shall not, either knowingly or recklessly, by making any statement, promise or forecast which is false, deceptive or misleading or, by any dishonest conceal­ment of material facts, induce or attempt to induce another person to enter into or to offer to enter into any

(i) Agreement for acquiring, disposing-off, subscribing for or underwriting shares or debentures;

(ii) Agreement, the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of shares or debentures, or by inference to fluctuations in the value of shares or debentures.

Otherwise, he shall be punishable with imprisonment for a term which may extend to 5 years or with fine which may extend to Rs. 10,000 or with both.

Persons who are liable for untrue statements in the prospectus:

According to Sec. 62 (1) of the Companies Act, the following persons are liable and punishable for untrue statements in the prospectus:

(a) Every person who is a director of the company at the time of the issue of the prospectus;

(b) Every person who has authorised himself to be named and is named in the prospectus either as a director or as having agreed to become a director, either immediately or after an interval of time;

(c) Every person who is a promoter of the company; and

(d) Every person who has authorised the issues of the prospectus.

Defence available in an action on the prospectus:

The parties against whom the proceeding have been taken for mis-statement in the prospectus may use certain pleas as their defence:

  1. Defences against the Civil Liability:

According to Sec. 62(2) of the Companies Act, no decree for damage shall be passed if the person charged can prove any one of the followings:

(a) Withdrawal of consent:

A person is not liable if he withdrew his consent before the issue of the prospectus.

(b) Issue without knowledge and consent:

If the person can prove that the prospectus was issued without his knowledge or consent and, after becoming aware of its issues, he gave public notice that the same was issued without his knowledge and consent.

(c) Statement of an expert:

If the statement which is alleged to be untrue purports to be a statement of an expert or a copy or of a valuation report of an expert, the person charged can be discharged from his liability if he can prove:

(i) It is a fair and correct copy or representation or extract of the expert’s statement;

(ii) He had reasonable grounds to believe;

(iii) The expert had given his consent to the issue of the prospectus;

(iv) The expert had not withdrawn his consent before registration.

(d) True Statement:

The person charged can escape from his liability if he can prove that he had reasonable ground to believe and did, up to the time of the allotment of shares or debentures, believe that the statement was true.

  1. Defences available to an expert:

Sec. 62(4) states that an expert whose opinion was included in the prospectus can use the following as defence:

(a) Withdrawal of consent:

After giving consent, he withdrew it in writing before delivery of a copy of the prospectus for registration.

(b) Knowledge of untrue statement:

If the person, on becoming aware of the untrue statement, withdrew his consent in writing and gave public notice with reasons thereof, after delivery of the copy of the prospectus to and before allotment.

(c) True statement:

He was competent to make such statement and he had reasonable grounds to believe and did up to the time of the allotment of shares and debentures, believe that the statement was true.

  1. Defense’s against Criminal Liability:

Sec. 63(1) states that a person charged in a criminal court will be acquitted if he can prove any one of the following:

(a) That the statement was immaterial, or

(b) That he had reasonable grounds to believe and did, up to the time of the issue of the prospectus, believe that the statement was true.

Management Notes

Prospectus, Statements in view of prospectus

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Sec. 2(36) of the Companies Act describes a prospectus as “any document issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any share in, or debentures of a body corporate.”

In other words, it is a document which invites deposits from the public or invites offers from the public for the subscription of shares in, or debentures of, a company. The words “inviting deposits from the public” were added by the Companies (Amendment) Act, 1974.

Features and Characteristics of Prospectus:

(i) It is a document issued as a prospectus;

(ii) It is an invitation to the member of the public;

(iii) The public is invited to subscribe to the shares or debentures of the company;

(iv) It includes any notice, circular, advertisement inviting deposits from the public;

(v) It is a document by which the company procures its share capital needed to carry on its activities.

Forms and Contents of the Prospectus:

Sec. 56 states that every prospectus must

  1. State the matters specified in Part I of Schedule II, and
  2. Set out the reports specified in Part II of Schedule II.

The Statement in Lieu of Prospectus is a document filed with the Registrar of the Companies ( ROC ) when the company has not issued prospectus to the public for inviting them to subscribe for shares. The statement must contain the signatures of all the directors or their agents authorized in writing. It is similar to a prospectus but contains brief information. The Statement in Lieu of Prospectus needs to be filed with the registrar if the company does not issues prospectus or the company issued prospectus but because minimum subscription has not been received the company has not proceeded for the allotment of shares.

If a public company does not invite the public to subscribe for its shares but acquires to have money from private sources it may not issue a prospectus. In the circumstances, the promoters are required to prepare a draft prospectus which is known as ‘Statement in lieu of Prospectus’ which must contain the information required to be disclosed by Schedule III of the Act.

Sec. 70(1) states that a company having a share capital which does not issue a prospectus shall not allot any of its shares or debentures unless at least 3 days before the allotment of shares or debentures there has been delivered to the Registrar for registration a statement in lieu of prospectus.

The statement shall be signed by every person who is named therein as a director or proposed director of the company or by his authorised agent in writing. It shall be in the form and contain particulars set out in Schedule III of the Act.

Sec. 70(4) lays down that, in contravention of Sec. 70(1), the company and every director of the company, who wilfully authorizes or permits the contravention shall be punishable with fine which may extent to Rs. 1,000.

Similarly Sec. 70(5) also states that where the statement in lieu of prospectus contains any untrue statement, the persons responsible, for the issue thereof, may be punished by imprisonment which may extend to 2 years or with fine which may extend to Rs. 5,000, or with both.

Red Herring Prospectus:

A Red Herring Prospectus is a document which is submitted by an issuer company who intents to have public offerings of securities (i.e.; stock or bonds). It is associated with an Initial Public Offering (IPO). It must be filed with the Securities and Exchange Commission (SEC). The term Red herring comes from the tradition where young hunting dogs in Great Britain were trained in order to follow a scent by the use of ‘Red’ (i.e. salted and smoked) herring (i.e., kipper).

It is interesting to note that this pungent fish would be dragged across a trail until the puppy learned to follow the scent. But the term is used in prospectus simply due to disclosure statement which is printed in red ink on the cover which clearly states that the issuing company is not attempting to sell its shares.

Contents of Red Herring Prospectus:

(a) Purpose of the issue;

(b) Proposed offering Price Range;

(c) Promotion expenses;

(d) Copy of the underwriting agreement;

(e) Underwriter’s commission and discount;

(f) Disclosure of any option agreement;

(g) Balance Sheet;

(h) Net proceeds to the issuing company;

(i) Earning statement for .last three years;

(j) Legal option on the issue;

(k) Copies of the Articles of Incorporation of the issuer; and

(l) Names and addresses of all offices, underwriters, directors and stockholders owning 10% or more of the existing outstanding stock.

Management Notes

Share Capital, Features, Types

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Share Capital refers to the total amount of capital raised by a company through the issue of shares to shareholders. It represents the ownership interest of shareholders in the company and forms a major part of the company’s funding. Share capital is divided into Equity shares and Preference shares, and it can be further categorized into authorized, issued, subscribed, and paid-up capital. The concept of share capital is crucial in determining voting rights, dividends, and the extent of liability of shareholders. It enables companies to raise long-term funds without incurring debt and provides investors with an opportunity to share in profits and ownership.

Features of Share Capital:

Share capital is the money raised by a company through the issuance of shares. It forms the financial foundation of a company and signifies the shareholders’ stake in the ownership of the business. The features of share capital reflect its role in corporate structure, investor relations, and financial stability.

1. Permanent Source of Capital

Share capital is a long-term and permanent source of finance for a company. Unlike loans or debentures, it is not repaid during the lifetime of the company. It stays invested in the business to support growth, operations, and expansion. This permanence strengthens the company’s financial structure and gives confidence to creditors. It is repayable only at the time of winding up, subject to the provisions of the Companies Act and satisfaction of liabilities.

2. Ownership Right

Share capital represents the ownership of the company. Shareholders are regarded as owners and not creditors of the company. The extent of their ownership depends on the number and type of shares they hold. Equity shareholders, in particular, have voting rights, control over company decisions, and a share in residual profits. This ownership right makes share capital unique as compared to borrowed funds, where lenders do not hold any ownership interest in the business.

3. Divisible into Small Units

Share capital is divided into small and equal parts called shares. This divisibility allows companies to raise capital from a large number of investors, even with small contributions. Each share has a nominal (face) value, and the shareholders receive share certificates as proof of ownership. This feature makes it easier for the company to mobilize large capital through public participation and offers flexibility to investors to invest as per their capacity.

4. Variety of Types

Share capital can be classified into different types to suit both company requirements and investor preferences. Major types include:

  • Authorized capital: maximum capital a company can raise

  • Issued capital: part offered to investors

  • Subscribed and paid-up capital: actually bought and paid for

  • Equity and preference shares: based on rights and returns

This classification helps companies structure their capital efficiently and offer flexibility in fundraising.

5. Limited Liability of Shareholders

A key feature of share capital is that it comes with limited liability for shareholders. Their financial responsibility is restricted to the unpaid amount on the shares they hold. They are not liable for company debts beyond this amount. This limitation encourages wider public investment as individuals are assured that their personal assets are protected. It distinguishes shareholders from proprietors or partners in firms who may face unlimited liability.

6. Transferability

In the case of public companies, shares representing share capital are generally freely transferable. Shareholders can sell their shares to others without seeking company approval (subject to applicable regulations). This feature ensures liquidity for investors, allowing them to exit when needed. However, in private companies, share transfer is usually restricted by the Articles of Association. Transferability adds flexibility and encourages investment in the corporate sector.

7. Right to Receive Dividends

Share capital entitles shareholders to dividends, which are a share in the company’s profits. While equity shareholders receive variable dividends declared by the company’s board, preference shareholders receive a fixed rate of dividend. Dividends are distributed only out of available profits and are not guaranteed. Still, the right to earn returns in the form of dividends makes shares an attractive investment, aligning investor interests with the company’s success.

Types of Share Capital:

  • Authorized Share Capital

Also known as nominal or registered capital, it refers to the maximum amount of capital that a company is authorized to raise through the issue of shares, as mentioned in its Memorandum of Association (MOA). A company cannot issue shares beyond this limit unless it amends the MOA by passing a resolution and obtaining regulatory approvals. Authorized capital determines the upper ceiling of a company’s financial base and is not necessarily fully issued or subscribed initially.

  • Issued Share Capital

Issued capital is the portion of authorized capital that the company actually offers to the public or investors for subscription. It may be equal to or less than the authorized capital. The company may issue shares in one or more stages, depending on its funding needs. For example, if a company has ₹10 lakh authorized capital and offers ₹5 lakh worth of shares to the public, then ₹5 lakh is the issued capital. It reflects the company’s active fundraising efforts.

  • Subscribed Share Capital

Subscribed capital is the part of issued capital that has been subscribed or agreed to be purchased by investors. It shows how much of the issued capital has actually been taken up by the public or private investors. For instance, if a company issues ₹5 lakh worth of shares and the public subscribes to ₹4 lakh, then the subscribed capital is ₹4 lakh. This type indicates the market response and investor confidence in the company.

  • Called-up Share Capital

Called-up capital is the portion of subscribed capital that the company has asked shareholders to pay. Companies may not ask for the full face value of shares immediately but may demand it in installments. For example, if a shareholder subscribes to 1,000 shares of ₹10 each and the company has called up only ₹6 per share, the called-up capital is ₹6,000. It indicates the actual demand made by the company for capital infusion.

  • Paid-up Share Capital

Paid-up capital is the portion of called-up capital that the shareholders have actually paid to the company. It is the real amount received by the company and forms part of the permanent capital. If some shareholders default in paying calls, then the paid-up capital is less than the called-up capital. For example, if ₹6,000 was called up and ₹5,800 was paid, then the paid-up capital is ₹5,800. It reflects the actual cash inflow from share capital.

  • Uncalled Capital

Uncalled capital is the portion of subscribed capital which has not yet been demanded (or “called”) by the company from its shareholders. This amount can be called in the future if the company needs additional funds. It represents a potential source of funding and is common in cases where shares are not fully paid up. It remains with shareholders until the company makes a formal call.

  • Reserve Capital

Reserve capital is a part of the uncalled capital that the company decides will be called up only at the time of winding up. It cannot be used during the lifetime of the company. The company must pass a special resolution to create reserve capital. It acts as a safety buffer for creditors in the event of liquidation, ensuring that some capital remains available to settle liabilities when the company is dissolved.

Management Notes

Share Warrant, Share Certificate

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Share Warrant is a negotiable instrument issued by a company that entitles the holder to acquire a specific number of shares at a predetermined price within a certain period. It is often used by companies as a means of raising capital or offering incentives to investors. Share warrants can be traded on the stock market like shares, but they do not carry voting rights or entitle the holder to dividends until the warrant is exercised, i.e., converted into shares.

Key Characteristics of Share Warrants:

  • Negotiable Instrument:

Share warrant is a transferable instrument that can be freely traded. The holder of a share warrant can sell it in the market, offering flexibility in investment decisions.

  • Right to Subscribe to Shares:

Share warrant grants the holder the right, but not the obligation, to purchase shares at a specified price (called the exercise price) within a set time frame. This option is attractive to investors because they can benefit from price fluctuations of the company’s shares.

  • No Ownership Rights:

Share warrant holders do not own the shares until they exercise the warrant. They are not considered shareholders and do not have voting rights or dividend entitlements.

  • Specified Time Period:

Warrants have an expiration date by which they must be exercised. After this period, the warrant becomes void, and the holder loses the opportunity to purchase shares at the pre-agreed price.

  • Issued by the Company:

Share warrants are issued by the company directly and are different from other market instruments like options, which are often issued by financial institutions or traded in the derivatives market.

  • Discounted Pricing:

Companies sometimes offer warrants at a price lower than the market price to make them attractive to investors. This can be particularly beneficial if the company’s share price increases before the warrant’s expiration, as the holder can buy the shares at a lower price.

Advantages of Share Warrants:

  • Capital Raising:

Companies can raise capital without immediately diluting shareholder equity. If warrants are exercised, the company will receive the exercise price as additional capital.

  • Incentive for Investors:

Share warrants can serve as a sweetener for investors, providing an additional benefit that increases the attractiveness of the investment.

  • Leverage Opportunity:

Investors can potentially gain leverage through warrants by buying shares at a lower price, benefiting from future appreciation in the company’s stock price.

Disadvantages of Share Warrants:

  • No Immediate Shareholder Rights:

Until exercised, the warrant holder has no claim to dividends or voting rights, limiting their influence in the company.

  • Expiration Risk:

If the company’s stock price does not rise above the exercise price before the warrant’s expiration, the warrant can become worthless.

Legal Provisions in India:

Under the Companies Act, 2013, the concept of share warrants is not commonly used by private companies, as the Act mandates all securities to be fully paid up before being issued. However, listed companies often use share warrants as part of capital raising or financial restructuring strategies.

Share Certificate

Share Certificate is an official document issued by a company that certifies ownership of a specific number of shares in that company. It serves as evidence of the title of a shareholder and acts as a legal proof of the ownership of shares. Share certificates are issued to shareholders after the shares have been allotted and fully paid up.

Key Characteristics of Share Certificates:

  • Proof of Ownership:

Share certificate is the primary document that certifies ownership of shares in a company. It acts as proof that the shareholder owns the shares mentioned in the certificate.

  • Physical or Dematerialized Form:

In the past, share certificates were issued in physical form, but with the rise of dematerialization, most companies now issue shares in electronic form. However, in cases where shares are still held in physical form, a physical certificate is provided.

  • Essential Information:

A share certificate contains key information such as:

  1. The name and address of the shareholder.
  2. The number of shares held by the shareholder.
  3. The unique share certificate number.
  4. The distinctive numbers of the shares.
  5. The face value of each share.
  6. The date of issue of the certificate.

  • Legal Document:

Share certificates are legal documents that can be presented in court as evidence of ownership. They must be signed by authorized company officers (usually the company secretary and one director) and bear the company’s seal.

  • Transferability:

Shares represented by share certificates are transferable, and the certificate plays a role in the transfer process. When shares are transferred, the old certificate is typically surrendered to the company, and a new certificate is issued to the new owner.

  • Issuance Timeline:

Under Indian law, the company is required to issue the share certificate within two months from the date of allotment of shares or within one month from the date of transfer of shares.

Advantages of Share Certificates:

  • Legal Recognition:

Share certificate legally proves that a shareholder owns a part of the company. This is crucial in situations like litigation or disputes over ownership.

  • Ease of Transfer:

In the case of physical shares, the certificate facilitates the transfer process, as it must be surrendered and reissued when ownership changes.

  • Historical Importance:

Before dematerialization, physical share certificates were important records of ownership and were often kept for long periods.

Disadvantages of Share Certificates:

  • Risk of Loss:

Physical share certificates can be lost, stolen, or damaged, leading to complications in proving ownership and requiring reissuance by the company.

  • Cumbersome Transfer Process:

In the case of physical share certificates, the transfer process can be time-consuming, as it requires physical handling and verification by the company.

Legal Provisions in India:

Under the Companies Act, 2013, companies are required to issue share certificates within the prescribed time frame (as mentioned above). Share certificates must be signed by authorized officers and stamped with the company’s seal. If a shareholder loses a certificate, the company must follow due legal procedures for reissuing a duplicate certificate.

Management Notes

Types of Shares (Equity Shares and Preference Shares), Features of Equity & Preference Shares

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Shares represent units of ownership in a company, allowing investors to hold a stake in the business. Companies issue shares to raise capital for operations, expansion, or debt repayment. Shareholders receive returns in the form of dividends and capital appreciation. There are two main types: equity shares, which provide voting rights and variable dividends, and preference shares, which offer fixed dividends with priority over equity shareholders. Shares are traded in stock markets, where their value fluctuates based on company performance and market conditions. Owning shares provides limited liability, meaning investors risk only their invested amount.

Equity Shares

Equity shares represent ownership in a company, giving shareholders voting rights and a share in profits through dividends. These shares are issued to raise long-term capital and fluctuate in value based on market performance. Equity shareholders are considered residual claimants, meaning they receive returns after all liabilities and preference dividends are paid. They carry higher risk but offer higher returns. Equity shares provide limited liability, meaning shareholders are only liable up to their investment. Companies issue them in different classes, such as ordinary or differential voting rights (DVR) shares.

Features of Equity Shares:

  • Ownership Rights

Equity shares represent ownership in a company, giving shareholders a claim on assets and profits. Shareholders are considered partial owners and have voting rights to influence corporate decisions. The extent of ownership depends on the number of shares held. This ownership provides shareholders with the ability to participate in key decisions such as mergers, acquisitions, and board member elections. Since equity shareholders are the last to receive payments in case of liquidation, their claim on company assets comes after creditors and preference shareholders. This ownership gives them the highest risk but also the highest rewards.

  • Voting Power

Equity shareholders have the right to vote on important corporate matters, making them influential stakeholders. Their voting power is proportional to the number of shares they own. They can vote on electing board members, approving mergers, and other strategic business decisions. Some companies also issue Differential Voting Rights (DVR) shares, which offer lower or higher voting power than regular shares. Although retail investors often do not participate in voting, institutional investors play an active role. Shareholders can also vote via proxies, allowing others to vote on their behalf in company meetings.

  • Dividends Based on Profits

Unlike preference shares, equity shares do not guarantee fixed dividends. Instead, dividends depend on the company’s profitability. If a company performs well, it may distribute high dividends; if it incurs losses, it may choose not to distribute dividends at all. Companies usually pay dividends annually or quarterly, but there is no obligation to do so. Dividend payments are decided by the board of directors and approved by shareholders. Some companies reinvest profits into growth instead of paying dividends, benefiting shareholders through stock price appreciation in the long run.

  • Residual Claim in Liquidation

Equity shareholders are considered residual claimants, meaning they receive their share of assets only after all liabilities, creditors, and preference shareholders have been paid in the event of liquidation. This makes equity shares riskier than other forms of investment. If a company goes bankrupt, there is no guarantee that equity shareholders will receive anything. However, if the company has sufficient assets left after paying debts, equity shareholders can claim their portion. While this poses a financial risk, it also provides the potential for high returns if the company performs well over time.

  • High-Risk, High-Return Investment

Equity shares are considered a high-risk, high-return investment. Their prices fluctuate based on company performance, market conditions, and investor sentiment. Unlike bonds or preference shares, equity shares do not provide fixed returns. Investors may experience significant capital appreciation if the company grows, but they may also face losses if it underperforms. The risk factor is influenced by economic conditions, industry trends, and regulatory changes. Long-term investors often benefit from market growth, while short-term traders take advantage of price volatility. Equity shares suit investors who can tolerate financial risk for potential higher rewards.

  • Limited Liability

Equity shareholders enjoy limited liability, meaning their financial risk is restricted to the amount they have invested in the company. If the company incurs losses or goes bankrupt, shareholders are not personally responsible for repaying debts beyond their investment. Unlike sole proprietors or partners, shareholders do not risk their personal assets. This makes equity shares an attractive investment option, as investors can participate in business growth without worrying about unlimited financial exposure. However, while their liability is limited, the value of their shares can fluctuate significantly based on market conditions.

Preference Shares

Preference Shares provide shareholders with a fixed dividend before equity shareholders receive any dividends. They combine features of equity and debt, offering stable income with limited voting rights. In case of liquidation, preference shareholders have a higher claim on assets than equity shareholders. These shares come in various forms: cumulative, non-cumulative, convertible, non-convertible, redeemable, and irredeemable. Preference shares are ideal for investors seeking steady returns without ownership control. Companies use them to attract conservative investors who prefer lower risk over potentially higher but uncertain equity returns.

Features of Preference Shares:

  • Fixed Dividend Payout

Preference shareholders receive a fixed dividend, unlike equity shareholders whose dividends fluctuate based on company profits. This makes preference shares a stable income source, attracting risk-averse investors. The dividend rate is pre-determined at the time of issuance, ensuring predictable returns. Even if a company earns high profits, preference shareholders receive only the fixed dividend, while equity shareholders benefit from profit surges. This fixed nature makes preference shares similar to bonds, offering regular income with lower volatility. However, dividends are paid only if the company has distributable profits.

  • Priority in Dividend Payment

Preference shareholders have the advantage of receiving dividends before equity shareholders. If a company declares dividends, preference shareholders are paid first, ensuring consistent returns. This priority makes preference shares more attractive to investors seeking steady income with lower risk. Even if a company faces financial difficulties, preference shareholders still have a better chance of getting paid than equity shareholders. This feature provides financial security for investors, making preference shares an ideal choice for those who prefer stability over the uncertainty of fluctuating dividends.

  • Priority in Liquidation

In case of a company’s liquidation, preference shareholders have a higher claim on assets than equity shareholders. After repaying debts and liabilities, preference shareholders receive their dues before any distribution is made to equity shareholders. This reduces the risk associated with investment in shares, as preference shareholders are more likely to recover their funds if the company goes bankrupt. However, they rank below creditors, meaning they will only be paid if funds remain after settling debts. This makes preference shares a safer investment compared to equity shares.

  • Limited or No Voting Rights

Unlike equity shareholders, preference shareholders generally do not have voting rights in company decisions. They cannot vote on management policies, mergers, or business strategies. However, in special cases, such as when dividends are unpaid for a certain period, preference shareholders may gain voting rights. Some companies issue preference shares with limited voting rights, allowing shareholders to participate in specific corporate matters. This feature makes preference shares more like debt instruments, offering financial benefits without significant control over the company’s decision-making process.

  • Convertible and Non-Convertible

Preference shares can be classified as convertible or non-convertible. Convertible preference shares can be converted into equity shares after a specified period or under certain conditions, offering investors the potential for capital appreciation. This makes them attractive for investors looking for both stability and long-term growth opportunities. On the other hand, non-convertible preference shares remain as preference shares throughout their tenure, providing fixed dividends without conversion benefits. Investors choose based on their risk appetite—convertible shares for growth potential and non-convertible shares for stable income.

  • Redeemable and Irredeemable Options

Preference shares can be redeemable, meaning the company repurchases them after a fixed period, or irredeemable, meaning they exist indefinitely. Redeemable preference shares provide companies with financial flexibility, as they can buy back shares when it is financially viable. This benefits investors by offering a guaranteed return of principal after a set period. Irredeemable preference shares, however, remain part of the company’s capital structure indefinitely, ensuring long-term dividend income. Companies issue different types based on their financial strategies and investor preferences.

Management Notes

Management of Company

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The company is a device that unites the efforts of a large number of people namely the Share­holders, Directors, Managing Director, Departmental Managers and Operatives.

The shareholders, who provide the funds for the company, are gener­ally regarded as the owner of the company and its business and property.

But in practice, sharehold­ers do not and cannot exercise control and carry out management of the business because they are diffused and scattered and live in different parts of the country, sometimes different parts of the globe.

They delegate their powers and authority to their elected representatives—the Board of Directors. So the management of a limited company is actually vested in the Board of Directors. Generally the Board appoints one of their members to be the Chairman and one to the position of the Managing Director.

With the election of directors, the function of the shareholder is over. The directors are selected by shareholders but in reality the shareholders elect the directors. The shareholders have nothing to do with day-to-day management of the company. The divorce between ownership and manage­ment is the most important feature of company management.

Other features are:

  1. The company as a legal entity is completely separate from its shareholders.
  2. The number of shareholders is so large and widely diffused that it is not possible for them to carry on day-to-day management of the company.
  3. The shareholders are a heterogeneous body of men belonging to different walks of life and may not be competent or interested to manage the diffi­cult problems of management.
  4. The position of a shareholder is that of an entrepreneur who bears the risks and supply the funds but delegates the management to the direc­tors or managing director. In theory, the shareholder is the master but in practice, he is a sleeping mas­ter.

The directors collectively constitute the Board of Directors which is the supreme policy-making body of the company. It assumes the powers and duties given in the Articles and carry on all those affairs of the company which are not done in gen­eral meetings of the shareholders. It distributes divi­dends amongst the shareholders, appoints and re­moves officers of the company and fill up any tem­porary vacancy if it may occur.

A distinguishing feature of company law in India is the statutory recognition of various types of managerial personnel.

The Companies Act, 1956 formerly provided for four alternative forms of management:

(I) By Managing Directors or Whole-time Directors,

(II) By Managing Agents,

(III) By Secre­taries and Treasurers and

(IV) By Managers. But no company can have at the same time more than one of the above categories of personnel.

The amended Act of 1969 abolished (II) and (III) of the modes from 3rd April 1970. So now a company can appoint either managing director or manager as its managerial executive.

The form of company management will be as follows:

At the top there will be shareholders but they are not the managers. The management of the com­pany lies in the hands of the elected representatives of the shareholders—the Board of Directors. For ex­ecuting the accepted policies, the Board appoints the chief executive, who may be either the manag­ing director or manager.

Under him is a small group of top managers, beneath them a larger group of middle managers, and below them, a still larger group of lower executives.

Problems of Company Management:

The company is managed by two main or­gans the shareholders in General Meeting and the Directors acting as a Board. The Board has to rely upon the Executives and staff to conduct the day- to-day business of the company. Though theoreti­cally the General Meeting could direct the business of the company, but actually it is not feasible.

Hence law vests the executive authority in a Board of Di­rectors, leaving only the ultimate authority to the general meeting which is not generally exercised because shareholders are widely diffused and they have small individual shareholdings. This raises a number of problems of corporate management.

These problems are discussed under the following heads:

  1. Company Management is oligarchic or democratic?
  2. How effective is the Board of Directors?
  3. The emerging pattern of company manage­ment.
Management Notes

Appointment of Directors, Legal Position

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SECTION 152 OF THE COMPANIES ACT, 2013: APPOINTMENT OF DIRECTOR

Director is an individual appointed to the Board of a company who is responsible for managing and supervising its affairs. Directors act as agents and trustees of the company, and they are accountable for ensuring good governance and compliance with statutory regulations. The appointment of directors is governed by Sections 149 to 172 of the Companies Act, 2013.

A director is a person who is appointed to perform the duties and functions of a company in accordance with the provisions of The Company Act, 2013.

As per Section 149(1): Every Company shall have a Board of Directors consisting of Individuals as director.

They play a very important role in managing the business and other affairs of Company. Appointment of Directors is very crucial for the growth and management of Company.

Types of Appointment of Directors:

1. First Directors (Section 152)

  • Appointed at the time of incorporation.

  • Names are mentioned in the Articles of Association.

  • If not named, all subscribers to the memorandum become first directors.

2. Appointment by Shareholders (Section 152(2))

  • Directors are usually appointed by the shareholders in a general meeting through an ordinary resolution.

  • Must file Form DIR-12 within 30 days with the Registrar of Companies (RoC).

3. Appointment by Board of Directors (Section 161)

  • Board can appoint additional, alternate, or casual vacancy directors.

  • These appointments are valid until the next Annual General Meeting (AGM).

4. Appointment by Central Government / Tribunal (Section 242)

  • The National Company Law Tribunal (NCLT) or Central Government may appoint directors in case of oppression or mismanagement.

5. Appointment by Proportional Representation (Section 163)

  • Companies may adopt this method if stated in their articles to ensure minority shareholder representation.

Procedure for Appointment of Directors:

  • Obtain Director Identification Number (DIN) – Mandatory under Section 153.

  • Consent in Form DIR-2 – Director must give written consent to act.

  • Filing with ROC (Form DIR-12) – Within 30 days of appointment.

  • Entry in Register – Director’s details must be entered in the Register of Directors.

Minimum Number of Directors (Section 149)

Company Type Minimum Directors
Private Company 2
Public Company 3
One Person Company (OPC) 1

Disqualifications (Section 164)

  • A person cannot be appointed as a director if:

  • Declared insolvent.

  • Convicted of an offense involving moral turpitude (imprisonment ≥ 6 months).

  • Disqualified by a court or tribunal.

  • Fails to obtain DIN.

APPOINTMENT OF DIRECTORS UNDER COMPANIES ACT 2013:

TYPE OF COMPANY APPOINTMENT MADE
Public Company or a Private Company subsidiary of a public company
  • 2/3 of the total Directors appointed by the shareholders.
  • Remaining 1/3 appointment is made as per Articles and failing which, shareholders shall appoint the remaining.
Private Company which is not a subsidiary of a public company
  • Articles prescribe manner of appointment of any or all the Directors.
  • In case, Articles are silent, Directors must be appointed by the shareholders

REQUIREMENT OF A COMPANY TO HAVE BOARD OF DIRECTORS:

Private Limited Company Minimum Two Directors
Public Limited Company Minimum Three Directors
one person Company Minimum One Director
  • A company may appoint more than (15) fifteen Directors after passing a special resolution.
  • Further, every Company should have one Resident Director (i.e. a person who has lived at least 182 days in India during the financial year)
  • Director’s appointment is covered under section 152 of Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

QUALIFICATIONS FOR DIRECTORS:

According to The Companies Act no qualifications for being the Director of any company is prescribed. The Companies Act does, however, limit the specified share qualification of Directors which can be prescribed by a public company or a private company that is a subsidiary of a public company, to be five thousand rupees (Rs. 5,000/-).

New Categories of Director:

  • Resident Director

This is one of the most important changes made in the new regime, particularly in respect of the appointment of Directors under section 149 of the Companies Act, 2013. It states that every Company should have at least one resident Director i.e. a person who has stayed in India for not less than 182 days in the previous calendar year.

  • Woman Director

Now the legislature has made mandatory for certain class of the company to appoint women as director. As per section 149, prescribes for the certain class of the company their women strength in the board should not be less than 1/3. Such companies either listed company and any public company having-

  • Paid up capital of Rs. 100 cr. or more, or
  • Turnover of Rs. 300 cr. or more.

Foreign National as a Director under Companies Act, 2013

Under Indian Companies Act, 2013, there is no restriction to appoint a foreign national as a director in Indian Companies along with six types of Directors which are appointed in a company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director. By complying with the Companies Act, 2013 (hereinafter referred as “The Act”) read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014 (hereinafter referred as “The Rules”)

Restrictions on number of Directorships:

  • The Companies Act prevents a Director from being a Director, at the same time, in more than fifteen (15) companies. For the purposes of establishing this maximum number of companies in which a person can be a Director, the following companies are excluded:
  • A “pure” private company;
  • An association not carrying on its business for profit, or one that prohibits the payment of any dividends; and
  • A company in which he or she is only appointed as an Alternate Director.
  • Failure of the Director to comply with these regulations will result in a fine of fifty thousand rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen (15) so determined.
Management Notes

Duties & Liabilities & Powers of Directors of the Company

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Duties

The position of Director of a Private Limited Company or Limited Company or One Person Company comes with certain duties and responsibilities. Many Directors of a Company are unaware of these duties and responsibilities expected of them and hold the position just as a namesake. Our intention with this article is to change that mindset and create awareness about the duties and responsibilities of a Director of a Company. This will in turn help create companies that have a strong and ethical Board of Directors, thereby benefitting all the stakeholders of a company.

Duty to act in the best interests of the Company

Directors are in a fiduciary position in relation to the company. So the Director must exercise his/her power for the benefit of the company or in the best interest of the company. A Director must also consider the interests of the company supreme and, in any case, above their personal interest. Therefore, a Director acting honestly but not in the best interests of the company is in breach of duty.

Fiduciary: A fiduciary is a person who holds a legal or ethical relationship of trust. Typically, a fiduciary prudently takes care of money for another person.

Duty NOT to misapply company assets

Directors do not have legal ownership of the company’s assets. They only have effective control of them, and they must use them and employe them for the proper purposes of the company, and in the best interests of the company.

Duty NOT to make secret profits

A Director holds a key position in relation to the company. Therefore, in the course of management of the business, the Director may get confidential and sensitive information concerning the company’s business and affairs, or trade secrets. This privileged information cannot be used by the Director for his/her personal benefit and gain to the detriment of the company.

Duty of confidentiality

Directors would have access to all the relevant information about the operations and financials of a company. However, a Director has a duty to ensure that such information is not, directly or indirectly, divulged. A Director must not disclose or make use of that confidential information for any purpose other than for the benefit of the company.

Duty to NOT permit conflict of interest

A Director of a company has a duty to not enter into any arrangement which will possibly impair the Director’s interest and cause conflict of interest with the Company. A conflict of interest arises when a person is in a position to derive personal benefit from actions or decisions made in their official capacity.

Duty to attend meetings

A Director of a company must make best efforts to attend as many board meetings as circumstances permit. In India, if a Director is absent from three consecutive meetings of the Board, or from all meetings held in three months, whichever is longer, without obtaining leave of absence from the Board, then the Director could lose his/her Directorship in the Company.

Duty NOT to exceed powers

The Memorandum of Association (MOA) of a Company states what the company is authorized to do. Whereas, the Articles of Association (AOA) of the Company state what powers are given to the Directors of the Company. It is the duty of the Directors to ensure that not only do they keep within the company’s powers but also that hey keep within the powers actually given to them in the Articles of Association.

Liability of directors:

The liabilities of directors may be discussed under three heads:

  1. Liability to outsiders:

The directors are not personally liable to outsiders if they act within the scope of powers vested in them. The general rule in this regard in that wherever an agent is liable, those directors would be liable, but where the liability would attach to the principal only, the liability is the liability of the company. The directors are personally liable to third parties of contracts in the following cases:

  1. They contract with outsiders in their personal capacity
  2. They contract as agents of an undisclosed principal
  3. They enter into a contract on behalf of a prospective company.
  4. When the contract is ultra-vires the company.

In default of statutory duties, the directors shall be personally liable to third parties in the following cases:

  1. Mis-statement in prospectus.
  2. Irregular allotment.
  3. Failure to repay application money if the minimum subscription is not subscribed.
  4. Failure to repay application money if allotment of shares and debentures is not dealt in on the stock exchange as provided in the prospectus.

Liability to company:

The directors shall be liable to the company for the following:

(a) Where they have acted ultra-vires the company.

It is not necessary to prove fraud in such cases or that they acted bonafide. For example, where they apply the funds of the company to objects not specified in the memorandum of association or when they pay dividends out of capital.

(b) When they have acted negligently.

Negligence may give rise to liability; there need not be fraud. But they will not be liable where they have acted bonafide and for the benefit of the company.

(c) Where there is a breach of trust.

Directors being the trusted of the company, they should discharge their duties in the best interest of the company; they should discharge their duties in the best interest of the company. Where they commit a breach of trust resulting in a loss to the company. Where they commit a breach of trust resulting in a loss to the company, they are bound to make god the loss. For example, where the directors apply company property of their own benefit they are guilty of breach of trust.

(d) Misfeasance:

Directors are liable to the company for misfeasance. The word misfeasance covers willful negligence. Mere failure on the part of the director to take necessary steps for recovery of debts due to the company does not constitute misfeasance. If the company is in the course of winding up, the court may, on the application of the liquidator, creditor or contributory examine in to the conduct of a director for any misfeasance or breach of trust in relation to the company.

  1. Criminal liabilities of directors:

So far we have dealt with the civil liability of directors. For act of fraud, default in discharging their duties and misdemeanor, the act provides penalties by way of fine or imprisonment. Section 75, 95, 113,115, 143, 162, 168, 303, etc. impose penalties upon the directors for omitting to company with or contravening certain provisions of the act.

Power

The directors are considered as the head and brain of a company. When the brain functions, the company is said to function. For the proper functioning, the directors should be properly entrusted with some powers. The directors generally acquire their powers from the provisions of the Articles of Association and then from the Companies Act.

  1. General Powers of a Company Director

As per Sec. 291 of the Act, the Board is entitled to exercise all such powers and to do all such acts and things as the company is authorized to do. The exceptions are the acts, which can be done by the company only in the general meetings of the members as required by law.

Specific Powers of a Company Director

  1. A) As per Sec. 262, in the case of a public company or a private company, which is a subsidiary of a public company, the power to fill a casual vacancy of directors is to be exercised at a Board meeting.
  2. B) As per Sec. 292, the following powers of the company shall be exercised by the Board by means of resolution passed at the meeting of the Board:
  • To make calls,
  • To issue debentures,
  • To borrow moneys by other means,
  • To invest the funds of the company, and
  • To make loans.

The last three powers cannot be delegated to the Manager or to a Committee of Directors but must be exercised only at a Board meeting.

  1. Powers of Director subject to the Consent of the Company

The directors of a public company or of a private company can exercise the following powers, which is a subsidiary of a public company only with the consent of the company in the general meeting:

  • To sell, lease or otherwise dispose of the undertaking of the company.
  • To remit or give time for repayment of any debt due to the company by a director.
  • To invest the sale proceeds of any property of the company in securities other than trust securities.
  • To borrow moneys where the moneys already borrowed (other than temporary) exceeds the total of the paid-up capital and free reserves of the company.
  • To contribute to charities and other funds not directly relating to the business of the company or to the welfare of the employees in any year in excess of Rs.50,000 or 5% of the average net profits of the three preceding financial years whichever is greater.
  1. Powers of Director subject to the Consent of the Central Government

A) As per Sec. 268, any provision relating to the appointment or reappointment of a Managing Director can be altered by the Board with the consent of the Central Government.

B) As per Sec. 295, the Board, subject to the Central Government’s consent, has the power to appoint a person for the first time as a Managing Director.

C) As per Sec. 295, the Board, only with the previous approval of the Central Government, can make any loan or give any guarantee or provide any security in connection with a loan made by any other person to:

  • Any of its directors or any director of its holding company, or
  • Any partner or relative of such director, or
  • Any firm in which any such director or relative is a partner, or
  • Any private company of which any such director is a member or director, or
  • Anybody corporate, 25% or more of whose total voting power may be exercised or controlled by any such director or two or more directors together, or
  • Anybody corporate, whose Board or Managing director or Manager is accustomed to act in accordance with the directions or instructions of any director or directors of the leading company.

Subject to the approval of the Government, the Board has the power to invest in the shares of another company in excess of the limits specified in Sec. 372.

Management Notes

Company Meetings: Statutory, Annual general meeting, Extraordinary Meeting

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Statutory Meeting

Statutory Meeting is the first meeting of the shareholders of a public company. It must be held within a period of not less than one month nor more than 6 months from the date at which the company is entitled to commence business. It is held only once in the lifetime of a company. A private company and a company limited by guarantee and not having a share capital need not hold such a meeting.

The purpose of the statutory meeting with its statutory report is to put the shareholders of the company in the possession of all the important facts relating to the new company, what shares have been taken up, what the moneys received etc. This also provides an opportunity to the shareholders of meeting to discuss the whole situation, the management and prospects of the company.

The Board of Directors must, atleast 21 days before the day on which the meeting is to be held, A forward a report, called the ‘statutory report’ to every member of the company. This report contains all the necessary information relating to formational aspects of the company for the information of the shareholders.

Contents of Statutory Report

  1. The total number of shares allotted, distinguishing those allotted as fully or partly paid up otherwise than in cash, the extent to which they are partly paid up, the consideration for which they have been allotted and total amount received in cash;
  2. An abstract of the receipts and payments under distinctive heads upto a date within seven days of the date of report;
  3. An account of estimate of the preliminary expenses of the company.
  4. The names, addresses and occupations of the managing director, director, and also its secretary and auditors of the company;
  5. The particulars of any contract which, and the modification or proposed modification of which, are to be submitted to the meeting for approval;
  6. The extent to which underwriting contracts, if any, have not been carried out and the reason therefor;
  7. The arrears, if any, due on calls from directors, managing director or manager; and
  8. The particulars of any commission or brokerage paid, or to be paid, in connection with the issue or sale of shares to any director, managing director or manager.

Annual General meeting

Annual General Meeting (AGM) is a yearly meeting of stockholders or shareholders, members of company, firm and organizations. Annual General Meeting is held every financial year and it is mandatory for everyone. In AGM functions like reviewing company account, approving audited accounts, elections, fiscal records of the past year are discussed.

As per Companies Act, an annual general meeting must be held by every company once a year without fail. There cannot be a gap of more than 15 months between two AGMs.

However, the first AGM of a company can be held at any date, within a period of 18 months, since the date of incorporation of the company. Annual general meetings help members understand the company’s rate of growth and potential for improvement.

An AGM gives insights into what steps made the company more successful and which steps caused loss. it helps the members and the board to decide the future course of action. An AGM must be held on a working day.

If the Government declares a public holiday on the day of the meeting, it will be considered a working day by the members attending the meeting. The annual general meeting can be held at the registered office of the company.

Legal Requirements for holding an Annual General Meeting

Legally, a notice period of 21 days must be given to all the members before the meeting. However, there is an exception to this rule. If all the voting members consent, the meeting may be held at an earlier date. Further, the following documents are also to be sent with the notice. Articles of Association, company bylaws, and jurisdiction specifies the rules that govern annual general meeting.

  • Copy of annual accounts of the company
  • Director’s report on the company’s position for the given year
  • Report by the Auditor of the annual accounts.

Members are allowed to use proxies in their absence. The proxy does not need to be a member of the company. However, the proxy forms have to be submitted to the company at least 48 hours before the meeting.

Quorum for Annual General Meeting

Unless the articles of the company state otherwise, the quorum for an Annual General Meeting is as follows

  • Public companies: At least 5 members must be present.
  • Other companies:At least 2 members must be present within half an hour of the commencement of the meeting.

Issues Undertaken at Annual General Meeting

The functions of business undertaken at a typical annual general meeting are listed as follows:

  • The declaration of dividend among shareholders
  • Consideration of annual accounts
  • Discussion of the director’s report and the auditor’s report
  • Appointment and fixing of the remuneration of the statutory auditors
  • Appointing replacement directors in place of existing directors retiring

Extraordinary meeting

An Extraordinary General Meeting (an EGM) can be defined as a meeting of shareholders which is not an Annual General Meeting (an AGM). It is held when some urgent issue becomes about the company arises or any situation of crisis and it requires the input of all senior executives and the Board.

As we know, an EGM is held in case of emergency situations and requires the attention of senors execs and the Board. Members, shareholders, and execs must be instructed on the purpose of the meeting so they have time to prepare their valuable input and then, collectively decide further course of action.

Who can Call for an EGM

The members/shareholders of a company can call for an extraordinary general meeting. However, only certain members with a significant stake in the company are allowed to call for an EGM. They are listed in the Companies Act,2013 as follows.

  • In the case of a company having a share capital, members holding not less than one-tenth of such paid-up capital of the company that carry voting rights in regard to that matter as on the date of depositing the requisition;
  • In the case of a company not having a share capital, members holding not less than one-tenth of the total voting power in regard to that matter as at the date of deposit of the requisition.
  • EGM called by Board.  Upon the receival of a valid requisition, the Board has a period of 21 days to call for an EGM. The EGM must be then held with 45 days from the day of the EGM being called.
  • EGM called by the requisitionists: In case the Board fails to call for an EGM, it can be called for by the requisitionists themselves during a period of 3 months from the day the requisition was deposited. If the EGM is held within this specified period of 3 months, it can be adjourned to any day in the future after the 3 months.

Essentials of a Valid Requisition

  1. Specify the issue for which the meeting is called
  2. Signed by requisitionists
  3. Must be deposited at the company’s registered office.

Requirements for holding an EGM

A notice period of 21 days must be given to the members. However, there is an exception to this rule. Where if 95% of the voting members consent, the EGM can be held at a shorter notice.

Quorum Required for EGM

Unless the company’s Articles state otherwise, the following number of members are required for a quorum.

  • In the case of a public company: Five(5) members personally present
  • In the case of any other company: Two (2) members personally present
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