Meaning

A share represents a unit of ownership in the capital of a company. Under Section 43 of the Companies Act, 2013, the share capital of a company limited by shares is of two kinds: Equity Shares and Preference Shares.

1. Equity Shares (Ordinary Shares) — Section 43(a)

Equity shares are shares that are not preference shares — they carry residual ownership rights in the company. Key features:

• Variable dividend: no fixed rate; dividend is declared by the Board out of remaining profits after preference dividend is paid.
• Voting rights: every equity shareholder has one vote per share on a poll — the primary mechanism of shareholder democracy.
• Residual claim: on winding up, equity shareholders receive remaining assets only after all liabilities, preference shareholders, and secured creditors are paid — highest risk, potential for highest reward.
• Freely tradeable on stock exchanges (for listed companies).
• Equity shares with Differential Voting Rights (DVRs) — Section 43(a)(ii): a company may issue equity shares carrying superior or inferior voting rights, subject to the Companies (Share Capital and Debentures) Rules 2014 and SEBI regulations.

2. Preference Shares — Section 43(b)

Preference shares carry preferential rights over equity shares in two respects: (a) payment of dividend at a fixed rate, and (b) repayment of capital on winding up. Features:

• Fixed dividend — declared at a pre-agreed rate before any equity dividend; provides predictable income.
• Priority on winding up — preference capital is returned before equity capital.
• No (or limited) voting rights — preference shareholders can vote only on matters directly affecting their rights.
• Must be redeemable — under Section 55, irredeemable preference shares cannot be issued; maximum redemption period is 20 years (30 years for infrastructure companies).

Sub-types of Preference Shares