Types of Shares in India and how they get allotted

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Types of Shares in India

Types of Shares in India

Types of Shares in India and Certificate allotment

As per the Indian Company Law, there are two types of shares in India-

  • Equity shares and
  • Preference shares.

Indolegal.com assists in getting both types of shares, and can help you choose the right certificate for you requirements.

Conditions and Types of Share Certificates

What is a Preference Share

Preference shares are shares that meet two specific conditions. Any share that does not meet these conditions is considered an equity share.

First Condition

The first condition is that the share or stock should carry certain preferential right for the shareholder with respect to fixed dividend amount payments or dividends payable at a fixed rate or percent. This dividend must be paid before an equity share holder receives the dividend.

Second Condition

The second condition is that the preferential share must allow the shareholder the right with respect to payment of capital when the company winds up. In other words, the amount payable for a preference share must be paid back to the shareholder before the equity shareholders are paid. Simply put, preference shareholders have a greater priority to dividends and repayments than equity shareholders.

Preference shares are also available in differently types-

  • Cumulative,
  • Non-cumulative,
  • Redeemable and
  • Non-redeemable.

Cumulative preference stock certificates in India give shareholders the right to demand unpaid dividend amounts during the next year or in years when profits can be distributed. Non-cumulative preference stock certificates in India give shareholders the right to a fixed percentage in dividend every year. If there is no dividend declared in a year when there is no profit, then the shareholders would receive nothing or they would be able to claim unpaid dividend in any year where there are profits.

Redeemable preference stock certificates in India are those that need to be repaid by the company after completion of a specified term. Irredeemable preference stock certificates in India are issued for preference shares that need not be repaid by the company except at the time of winding up. A limited company would not be allowed to issue redeemable preference shares with a period greater than 10 years. If a company cannot redeem any of the preference shares within this period, then it may issue more redeemable shares to equal the old, unredeemed ones with the consent of the Company Law Board.

How are different types of shares in India allotted

Multiple types of Shares in India and stock certificates are allotted by the company from which you buy the shares. Therefore, all these certificates must bear the company’s common seal. The certificates must also be stamped in accordance with the relevant Indian Stamp Act.

The company that is allotting shares must deliver the certificates of all its shareholders within 3 months from the date of allotment.

Transfer of Shares

If the share is being transferred, then the stock certificates in India must be ready to be delivered within 2 months from the date that the shares a lodged for transfer. Indolegal.com can help in easing the process of getting share certificates in India.

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