Page 129 - DCOM106_COMPANY_LAW

Company Law

Notes (iii) The conversion of the CCP shares into equity would be deemed as being one resulting
from the process of redemption of the preference shares out of the proceeds of a
fresh issue of shares made for the purposes of redemption.
(iv) The rate of preference dividend payable on CCP shares would be 10%.
(v) The guidelines in respect of preference shares regarding ratio of 1:3 as between
preference shares and equity shares would not be applicable to this new instrument.
(vi) On conversion of the preference shares into equity shares, the right to receive arrears
of the dividend, if any, on the preference shares up to the date of conversion shall
devolve on the holder of the equity shares on such conversion. The holder of the
equity shares shall be entitled to receive the arrears of dividend as and when the
company makes profit and is able to declare such dividend.
(vii) The aforesaid CCP share would have voting rights as applicable to preference share
under the Companies Act.
(viii) The conversion of aforesaid preference shares into equity shares would be compulsory
at the end of 5 years; and the aforesaid preference shares would not be redeemable
at any stage.
5. Denomination: The face value of CCP share will ordinarily be 100 each.
6. Listing: CCP shares shall be listed on one or more stock exchange in the country.

7. Articles of Association of the Company and Resolution of the General Body: The articles
of association of the company proposing to issue CCPSs should contain a provision for
issue of such shares. Further, the company must submit with the application to SEBI a
certified copy of a special resolution in this regard under s.81 (1A) of the Companies Act,
duly passed in the general meeting of the company. This resolution must approve the
issue of CCP shares and provide for compulsory conversion of the preference shares
between the 3rd to 5th year, as the case may be.

Task A buys from B 400 shares in a company on the faith of a share certificate issued by
the company. A tenders to the company a transfer deed duly executed together with B’s
share certificate. The company discovers that the certificate in the name of B has been
fraudulently obtained and refuses to register the transfer. Advise A. [Hint: A has a right to
be registered as a shareholder or receive compensation from the company to the extent of
the value of the shares at the time of refusal to register the transfer as a share certificate
works as an estoppel against the company.

9.2.8 Deferred or Founders’ Shares

A pure private company can issue shares of a type other than those discussed above (s.90). Thus,
it may issue what are known as deferred shares. As deferred shares are normally held by
promoters and directors of the company, they are usually called founders’ shares. They are
usually of a smaller denomination, say one rupee each. However, they are generally given
equal voting rights with equity shares, which may be of higher denomination, say 10 each.
As regards payment of dividend to holders of such shares, the articles usually provide that these
shares will carry a dividend fixed in relation to the profits available after dividends have been
declared on the preference and equity shares. Thus, the promoters, founders and directors have
a very direct interest in the success of such a company: the greater the profits of the company, the
higher their dividends.

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