Page 270 - DMGT407Corporate and Business Laws

Unit 11: Prospectus, Shares and Share Capital

11.3.7 Deferred or Founder’s Shares Notes

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 founder’s shares. They are
usually of a smaller denomination, say one rupee each. However, they are generally given
equal voting rights with equity share which may be of higher denomination, say ` 10 each. As
regard 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.
It is to be remembered, however, that as and when the private company converts itself into a
public company, it will have to alter its capital structure and retain only equity share capital and
preference share capital (including CCPs), if any.
11.3.8 Non-voting Shares

‘Non-voting shares’ as the term suggests are shares which carry no voting rights. These are
contemplated as altogether a different class of shares which may carry additional dividends in
lieu of the voting rights. The companies (Amendment) Act, 2000 provided for issue of such type
of equity shares under s. 86.
The Companies (Amendment) Act, 1999, allowed issue of sweat equity shares subject to fulfillment
of certain conditions. A new Section - 79A was inserted for this purpose. The provisions are:
Notwithstanding anything contained in s.79, a company may issue sweat equity shares of a class
of shares already issued if the following conditions are satisfied: (a) the issue of sweat equity
shares is authorised by a special resolution passed by the company in the general meeting;
(b) the resolution specifies the number of shares, current market price, consideration, if any and
the class or classes of directors or employees to whom such equity shares are to be issued; (c) not
less than one year has, at the date of the issue elapsed since the date on which the company was
entitled to commence business; (d) the sweat equity shares of a company whose equity shares
are listed on a recognised stock exchange are issued in accordance with the regulations of SEBI.
In case of a company whose shares are not listed on any recognised stock exchange, the sweat
equity shares may be issued in accordance with the guidelines as may be prescribed. For the
purposes of this section, the expression ‘a company’ means company incorporated, formed and
registered under this Act and includes its subsidiary company incorporated in a country outside
India.

Did u know? Sweat Equity Shares
The expression “sweat equity shares” means equity shares issued by the company to
employees or directors at a discount or for consideration other than cash for providing
know-how or making available rights in the nature of intellectual property rights or
value additions, by whatever named called.
However, all the limitations, restrictions and provisions relating to equity shares shall be
applicable to such sweat equity shares.

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