1. Kinds of Share Capital — Section 43

The share capital of a company limited by shares is classified on the basis of amount and payment status:

Classes of shares — Section 43:

• Equity Shares (Ordinary Shares): carry variable dividend (based on profit), carry voting rights, bear residual risk and reward, and have the lowest priority in a winding up. Can be equity shares with differential voting rights (DVR) under Section 43(a)(ii).
• Preference Shares: carry a fixed rate of dividend payable before equity dividend, have preference in capital repayment on winding up, and generally carry no (or limited) voting rights.

2. Issue and Redemption of Preference Shares — Section 55

Preference shares are shares that carry preferential rights with respect to payment of dividend at a fixed rate and repayment of capital on winding up.

Types of Preference Shares:

• Cumulative: unpaid dividends from earlier years accumulate and must be paid before any equity dividend is declared.
• Non-Cumulative: if dividend is not declared in a year, it lapses — no right to arrears.
• Participating: in addition to fixed dividend, also participate in surplus profits after equity dividend.
• Non-Participating: entitled only to the fixed dividend.
• Redeemable: redeemable by the company on a fixed date or after a fixed period.
• Convertible: convertible into equity shares at the option of the holder after a specified period.

Issue: preference shares are issued via a prospectus or private placement and allotted as per statutory procedure; amount received above face value goes to Securities Premium Account.

Redemption under Section 55:

• A company may issue only redeemable preference shares; irredeemable preference shares are not permitted under the 2013 Act.
• Maximum redemption period: 20 years (except infrastructure companies — up to 30 years).
• Redemption may be funded from: (a) profits available for dividend — in which case a Capital Redemption Reserve (CRR) equal to the nominal value of shares redeemed must be created; (b) proceeds of a fresh issue of shares made for the purpose.
• Redeemed shares are cancelled and do not count toward the company's issued share capital thereafter.

3. Debentures — Section 2(30)

A debenture is a document issued by a company acknowledging a debt and setting out the terms of repayment, rate of interest, and security (if any). Debenture holders are creditors of the company, not owners, and their interest is paid before any dividend is declared.

Types of Debentures:

• Secured (Mortgage) Debentures: backed by a charge on the company's specific assets (fixed charge) or floating assets (floating charge); debenture holders can enforce the charge in case of default.
• Unsecured (Naked) Debentures: not backed by any charge; holders are ordinary unsecured creditors.
• Convertible Debentures (CDs): can be converted into equity shares after a specified period — Fully Convertible Debentures (FCDs) convert entirely; Partly Convertible Debentures (PCDs) convert only a portion.
• Non-Convertible Debentures (NCDs): cannot be converted; must be redeemed on maturity.
• Registered Debentures: name of the holder is registered; transferable by execution of a transfer deed.
• Bearer Debentures: transferable by delivery; payable to the bearer.

Issue and Redemption of Debentures:

• Debentures may be issued by a public or private company to the public (with a prospectus) or by private placement (Form PAS-4).
• A Debenture Redemption Reserve (DRR) is no longer mandatory under the 2013 Act as amended in 2019 (except for listed companies and certain others as may be specified), but a company must invest or deposit an amount equal to at least 15% of the debentures maturing in the following year in specified liquid instruments.
• A Debenture Trustee must be appointed for every issue of debentures to a public body of more than 500 debenture holders; the trustee protects the interest of debenture holders and enforces the charge in case of default.