Shares and Share Capital — Kinds — Company Law Notes

Shares and Share Capital — Kinds

When you buy a share, you are not buying a piece of the company’s factory — you are buying a bundle of rights: a right to vote, to a dividend, and to a slice of the surplus if the company is wound up. A share is measured in money but is really a package of legal rights.

What is a share?

A share is a unit into which the capital of a company is divided. It represents the holder’s proportionate interest in the company, measured by a sum of money (its nominal value) and carrying a bundle of rights and liabilities fixed by the articles.

Section 2(84): “share means a share in the share capital of a company and includes stock.” Section 44: “the shares… of any member in a company shall be movable property, transferable in the manner provided by the articles.”

In Simple Terms: A share is one slice of the company’s capital pie, and owning it makes you a part-owner with defined rights — but it is movable property you can sell, not a claim on any particular asset (recall Macaura).

Kinds of share capital (s.43)

A company limited by shares may have two kinds of share capital:

A. Equity share capital (s.43(a)). The ordinary shares — the real risk-takers and owners.

• carry voting rights in proportion to shares held;
• get dividend only after preference shareholders, and only if declared — no fixed rate;
• share the surplus on winding up after everyone else is paid;
• may be with normal rights or with differential rights as to dividend/voting.

B. Preference share capital (s.43(b)). Shares carrying two preferential rights over equity:

• a preferential right to dividend at a fixed rate; and
• a preferential right to repayment of capital on winding up.

Preference shares are sub-classified:

• Cumulative / non-cumulative — whether unpaid dividends of past years carry forward.
• Participating / non-participating — whether they also share in surplus profits.
• Convertible / non-convertible — whether convertible into equity.
• Redeemable — must be redeemed within 20 years (s.55); a company cannot issue irredeemable preference shares.

Other capital concepts: authorised (nominal) capital (the ceiling in the MOA), issued, subscribed, called-up, and paid-up capital.

flowchart TD
    ROOT["Share capital (s.43)"]:::root
    ROOT --> E["Equity"]:::mid
    ROOT --> P["Preference"]:::mid2
    E --> E1["Voting; residual dividend; surplus"]:::leaf
    E --> E2["With differential rights"]:::leaf
    P --> P1["Fixed dividend + repayment priority"]:::leaf
    P --> P2["Cumulative / Participating / Convertible / Redeemable (<=20 yrs)"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,color:#000;
    classDef mid fill:#DCFCE7,stroke:#166534,color:#000;
    classDef mid2 fill:#FDE8D0,stroke:#92400E,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

🧩 WORKED EXAMPLE — equity vs preference on winding up

Facts. On winding up, a company has just enough to repay capital but little surplus. Preference and equity shareholders both claim.

Rule. Preference shares carry a preferential right to repayment of capital (s.43(b)); equity shares rank last, taking only the surplus.

Apply. Preference shareholders are repaid their capital first; equity holders take whatever (if anything) remains.

Conclusion. Preference capital is repaid before equity — the price the equity holder pays for his voting control and upside.

Case Laws

• [C-15] Borland’s Trustee v Steel Bros. & Co. (1901) — a share is an interest measured by money, a bundle of rights and obligations.
• CIT v Standard Vacuum Oil Co. (1966) — nature of preference shares.

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