As per Section 43 of The Companies Act, 2013, a company can issue:

(1) Preference shares.

(2) Equity shares (ordinary shares).

Preference Shares

According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions:

a) That it carries a preferential right to dividend, as a fixed amount or at a fixed rate before any dividend is paid to the equity shareholders.

b) On the winding-up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders.

Types of Preference Shares

1. Cumulative and Non-Cumulative Preference Shares

The preference shares enjoying the right to accumulate unpaid dividends in the future years are known as cumulative preference shares. On non-cumulative shares, dividend is not accumulated if it is not paid in a particular year.

2. Participating and Non-Participating Preference Shares

Preference shares which have a right to participate in the surplus profits of a company after the payment of equity dividend at a certain rate are called participating preference shares. The non-participating preference shares do not enjoy such rights.

3. Convertible and Non-Convertible Preference Shares

Preference shares that can be converted into equity shares within a specified period of time are known as convertible preference shares. Non-convertible shares are such, which cannot be converted into equity shares.

Equity Shares

According to Section 43 of The Companies Act, 2013, an equity share is a share which is not a preference share, it means shares which do not enjoy any preferential right in the payment of dividend or repayment of capital, are termed as equity shares.

Minimum Subscription

It is the minimum amount that must be raised for:

-the price of any property purchased.

-preliminary expenses and any commission on the issue of shares.

-the repayment of any money borrowed by the company for the above two matters.

-working capital.

-any other expenditure for the normal conduct of business operations.

As per SEBI guidelines, Minimum subscription of capital cannot be less than 90% of the issued capital.

If not received, the company shall refund the entire subscription amount received within 15 days from the date of closure of subscription list.

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