Share Capital, Shares, Debentures and Dividends
Capital and dividend basics
This domain tests the distinction between authorised, issued, subscribed and paid-up capital; the rights attached to shares; debenture finance; and the procedure for declaring and paying dividends.
Core rules and concepts
- Share capital: authorised capital is the maximum stated in the MOA; issued capital is allotted to applicants; subscribed capital is actually agreed to be taken; paid-up capital is the amount paid on shares.
- Equity shares carry voting rights and variable dividends; preference shares carry preferential dividend and repayment rights, usually with limited voting.
- Shares may be issued at par or premium, subject to the Act and articles; transfer and transmission follow the articles and statutory procedure.
- Debentures are debt instruments, not share capital; debenture holders are creditors and generally have no voting rights.
- Dividend is declared by members on the board's recommendation; the board may declare interim dividend. Final dividend cannot exceed the board's recommendation. Unpaid or unclaimed dividend must be transferred to the prescribed account and ultimately to the IEPF after the statutory period.
Worked example
A company has 2,00,000 equity shares of face value ₹10 and declares a 12% dividend. Dividend = 2,00,000 × ₹10 × 12% = ₹2,40,000. Reasoning: the percentage applies to the face value or paid-up amount as stated, not to the market price. If the shares were partly paid, the dividend would be calculated on the amount paid up, subject to the articles.
Traps that cost marks
Do not calculate dividend on market value. Do not confuse debentures with shares or call debenture interest a dividend. Do not say members can declare more than the board recommends. Do not ignore the separate treatment of interim dividend and unpaid dividend transfers.