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 is called 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.

RIGHTS OF EQUITY SHAREHOLDERS

(1)Right to receive dividend Equity shareholders receive higher dividends. They get dividends only after making payment to preference shareholders. The rate of dividend depends upon the profits of the company in each year. (2)Right to participate in management of company The Equity shareholders enjoy considerable control over the management of the company. (3) Right to attend Board meeting Equity share holders who have a major no. of shares have a right to attend a board of director meeting but preference share holders does not get any right to attend meeting. (4)Right to make decisions Preference shareholders do not have right take decisions for the company however an equity share holder can take decisions for the company.

(4) Voting rights Equity shareholders are the owners of the company and have voting rights . 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 members meeting The members of a company exercise control over the company at its meetings. Shareholders are conferred with a number of rights with respect to general meeting, including right to receive notices to meeting, right to appoint a proxy and right to vote. (6) Transfer of shares A members shares in a company are transferable. In a private company 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 information concerning the company. Members are entitled, among other thing, to: (i) a copy of the memorandum 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. (8)Right and Bonus issue When new shares in the company are issued, the equity shareholders have an automatic right of first refusal to purchase these shares in proportion to their existing shareholdings. The issue of such shares is also called as a rights issue. They are also eligible for Bonus shares 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 the creditors 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 dividend over 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 the company. (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 the company. 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 the memorandum 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. Financial assets 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 concerned member. 6. Dividend Mandate : The Dividend is directly paid into the bank of the concerned member.

Type of the Dividend

1. 2.

Interim Dividend 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. 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.

4.

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. 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.

6.