shareholders rights, dividend payment and

8/3/2019 Shareholders Rights, Dividend Payment And

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SHAREHOLDERS RIGHTS,DIVIDEND PAYMENT AND

FIXED ASSETS



WHO ARE SHAREHOLDERS?

A Company can raise capital by issue of shares.

The share capital is the owned capital of a

company. The share capital of a company is

divided into a number of parts. Each such part iscalled a ¶share·. The person holding the share in

the company are called as shareholders.

There are two types of shares under Indian

Company Law.

Equity shares

Preference shares



EQUITY SHARES

Equity shares are also known as ordinary shares.

Equity shares means that part of share capital

which do not have preference for dividend. It is

the permanent capital to the company. These

shares enjoy rewards as well as bear risks of the

company.



(4) Voting rights

Equity shareholders are the owners of the company and have votingrights . A shareholder may exercise her voting rights for many purposes, such as election of directors, declaration of dividends,adoption of accounts and appointment of auditors.

(5) Rights regarding member¶s meeting

The members of a company exercise control over the company at its

meetings. Shareholders are conferred with a number of rights withrespect to general meeting, including right to receive notices tomeeting, right to appoint a proxy and right to vote.

(6) Transfer of shares

A member¶s shares in a company are transferable. In a privatecompany however, restrictions must be placed on the transfer of shares. Equity shareholders can sell their shares or transfer to a person they wish.



(7) Right to information

A member of a company has the right to certain informationconcerning the company. Members are entitled, among other thing,

to: (i) a copy of the memorandum and articles of association of thecompany; (ii) inspect and obtain copies of the minutes of generalmeetings and resolutions; (iii) inspect and obtain copies of thevarious registers kept by the company, including the register of members, (iv) obtain a copy of the financial statements, directors¶report and auditors¶ reports; (v) obtain copies of the financial

statements of any subsidiary company.

(8)Right and Bonus issue

When new shares in the company are issued, the equity shareholdershave an automatic right of first refusal to purchase these shares in

proportion to their existing shareholdings. The issue of such sharesis also called as a µrights issue¶. They are also eligible for Bonusshares if issued by the company.



(9) Participation in Surplus

The Equity shareholders can participate in the surplus profits of the

firm and in the surplus assets at the time of winding up. Once thecreditors and expenses of the liquidator have been paid,

any remaining funds are returned to the shareholders in

proportion to their shareholdings, unless the articles of

association provide otherwise.

(10) Right to apply for investigation

When members are of the opinion that the affairs of the

company are run in a manner that warrants investigation,

they may make an application to the Court for ordering

such investigation. Such an application is required to be

made by not less than 200 members or such number of

members holding not less than one-tenth of the total voting

rights in the company.



PREFERENCE SHARES

Preference shares are those shares which enjoy preference over equity

share capital. The two main preferences are

Preferential rights in respect of Dividend at fixed amount or at

fixed rate.

Preferential rights in regards to payment of capital on winding up

of the company



RIGHTS OF PREFERENCE SHAREHOLDERS

(1)Preference for Dividend

Preference shareholders enjoy preference for payment of dividendover equity shareholder. The preference shareholders get a regular dividends. The dividend rate is fixed.

(2) Preference for Repayment of Capital

The preference shareholders get preference during in repayment of capital over equity shareholders at the time of winding up of thecompany.

(3) Right to claim Dividend Arrears

The preference shareholders has the right to claim dividend arrears.

(4) Redemption of shares

The preference shares can be redeemed during the lifetime of thecompany. They may provide temporary capita to the company.



(5) Voting Rights

The preference shareholders do not have normal voting rights like

equity shareholders , except on those matters which affects their interest.

(6) Right to information

A member of a company has the right to certain

information concerning the company. Members are

entitled, among other thing, to: (i) a copy of thememorandum and articles of association of the company;

(ii) inspect and obtain copies of the minutes of general

meetings and resolutions; (iii) inspect and obtain copies of

the various registers kept by the company, including the

register of members, (iv) obtain a copy of the financial

statements, directors· report and auditors· reports; (v)obtain copies of the financial statements of any subsidiary

company.



MEANING OF DIVIDEND

1.Payment of dividend

The dividend must be paid as per the articles of association. The

payment of dividend may be made in the following forms.

Cash dividend

Stock dividend

Property dividend

Other dividend

Dividend Warrant

Dividend Mandate/ Electronic Clearance Service.



1.Cash dividends (most common) are those paid out in currency,

usually via electronic funds transfer or a printed paper check. Such

dividends are a form of investment income and are usually taxable

to the recipient in the year they are paid. This is the most common

method of sharing corporate profits with the shareholders of the

company.

2. Stock or scrip dividends are those paid out in the form of additional

stock shares of the issuing corporation, or another corporation. They

are usually issued in proportion to shares owned

3. Property dividends or dividends are those paid out in the form of

assets from the issuing corporation or another corporation



4. Other dividends :can be used in structured finance. Financialassets with a known market value can be distributed as

dividends; warrants are sometimes distributed in this way. For

large companies with subsidiaries, dividends can take the

form of shares in a subsidiary company.

5. Dividend Warrant : Dividend Warrant is issued to the member

in form of an order cheque. It is an order issued by the

company to its bankers to pay the amount to the concernedmember.

6. Dividend Mandate : The Dividend is directly paid into the

bank of the concerned member.



Type of the Dividend

1. Interim Dividend

2. Final Dividend

1. Interim Dividend: It is the dividend, which is declared between two annual

General meetings. It is distributed before the finalization of the annual

accounts and before declaring the final dividend. The Board of Directors may

declare interim dividend and the amount of dividend including interim

dividend shall be deposited in a separate bank account within 5 days from the

date of declaration of such dividend.

2. Final Dividend: It is the dividend which is declared at the end of the financial

year on the basis of the actual profits of the year. It is declared in the annual

general meeting, which is convened at the completion of financial year.



Procedure for ascertainment of dividend

1.Dividend on paid up Capital : A Company may, if so authorized by

its Articles, pay dividend on the paid up value of shares.

2.Provision of Articles of Association :

A company may declare dividend its general meeting provided it

does not exceed the amount recommenced by the board of directors.

Notice of any dividend should be given to those who are entitled

to receive it.

The directors my transfer an amount they think proper to the

reserve fund which may be utilized for any contingencies.

When a dividend has been declared, it becomes a liability of the

company to the shareholders from the date of its declaration but no

interest can be claimed on it.



3.Dividend only of Profits : Dividend can only be declared or paid out of

The current profits of the company.

The past accumulated profits.

4. Payment of dividend to specified persons : Dividend shall be paid only to those

whose names appear on the register of member son the date of declaration of

dividend or to the holders of dividend warrant, if issued by the company.

5.Payment of dividend within 42 days : Dividend must be paid within 42 days of its

declarations except in the following circumstance : In compliance of the directions of the shareholders

Where right to receive dividend is pending decision.

Where it is not due to the default of the company.

If company lawfully adjusts the amount against any debt due form the

shareholder.

6. Payment of Interim dividend : The directors of a company can pay interim

dividend subject to the provisions of articles. Interim dividend can be paid at any

time between the two annual general meeting taking into full year depreciation

on fixed assets.

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