[3] Sweat Equity Shares” means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Send your current work/resume with title "Resume-Editor" at vedantayadav@lawtimesjournal.in, Law Times Journal: One-Stop Destination for Indian Legal Fraternity. The have voting rights in the meetings of the company, thus have control over the working of the company. The value of equity shares keep on changing according to the present and perspective earning of the company. So for this it is Preference Shares and Its Different Types?
[1] The rate of dividend is fixed water preference shares.

The preference shareholders do not have any rights to control the event of the company. This article throws light upon the three main types of shares of a company. Equity shares are also known as ordinary shares.

(1) There is permanent burden on the company to pay a fixed rate of dividend before paying any dividend to other shares. [16] Preference shares: capital or debt? [2] Surbhi S , Difference Between Equity Shares and Preference Shares (2015), http://keydifferences.com/difference-between-equity-shares-and-preference-shares.html (last visited Apr 19, 2017). These can be converted to equity shares Report a Violation, Equity Shares: Features, Advantages and Disadvantages of Equity Shares, Preference Shares: Features, Types and Other Details, 5 Main Activities Involved in an Engineering Project. I.

The preference shares helps in raising the long term capital for a company. [17] Winnie Shekhar & Suneeth Katarki, India: Should Investors Still Prefer The Preferred? 2) Preference Shares. If there is surplus amount of finance in the company then redeemable shares can be paid off. These cannot be converted to preference shares: Preference shares are the shares which promise the holder a preference over the equity shares. Recommended: What are the Key Differences Between Dematerialisation and Rematerialisation. The preference shares are safer investments than the equity shares. Copyright 10. Prohibited Content 3. An Indian perspective, Preference shares: capital or debt? Under this, the fixed rate of dividend is paid first and then a reasonable rate of dividend is paid on equity shares. [14] B. Srinivas, Voting Rights of Preference Shareholders under Companies Act, 2013 Voting Rights of Preference Shareholders under Companies Act, 2013 (2015), http://taxguru.in/company-law/voting-rights-preference-shareholders-under-companies-act-2013.html (last visited Apr 18, 2017). The shares which cannot be converted into equity shares are called nonconvertible preference shares. Equity shareholders are paid dividend after paying it to the preference […] While the preference shareholders as the benefit of enjoying the voting rights in the major company decisions which includes mergers and acquisitions.

Equity shareholders enjoy the right to maintain proportionate interest in profits as well as assets of the company to pay the dividend. Equity Shares: Equity shares also called as ordinary shares are the form of part or fractional ownership in which the shareholder has to take the business risk at the extreme. Irredeemable Preference Shareseval(ez_write_tag([[970,250],'lawtimesjournal_in-leader-1','ezslot_10',117,'0','0'])); Under the shares can only be redeemed, if the company is liquidated. 85(1)] Mortgage property does not apply on these shares.[21]. [8] Under value additions the actual are anticipated economic benefits are derived by the company. Equity or ordinary shareholders are the real owners of the company. Under the convertible preference shares by shareholders are given the right to convert their Holdings into equity shares after the specified period. TOS 7.

– A Perspective On Investing In Preference Shares In The Light Of The New Companies Act, 2013 (2014), http://www.mondaq.com/india/x/360936/Corporate Commercial Law/Should Investors still prefer the preferred A perspective on investing in preference shares in the light of the new Companies Act 20131 (last visited Apr 18, 2017). In the event of winding up of the company and after the claims of all the creditors and preference shareholders are settled, the equity shareholders can have claim on the assets of the company. [7] Lokesh Sharma, Sweat Equity Shares (2016), https://www.quickcompany.in/articles/sweat-equity-shares (last visited Apr 6, 2017). [21] Difference between Preference Shares and Equity shares , (2015), http://www.gktoday.in/blog/difference-between-preference-shares-and-equity-shares/ (last visited Apr 18, 2017). Call us at- 8006553304, © 2014-2020 Law Times Journal | All Rights Reserved. If a person wants to open his or her own business or wants to expand the business but does not have enough money to do so. The shares which cannot be converted into equity shares are called nonconvertible preference shares. In this case the share-holders have no claim for the arrears of dividend. [6], As for this rule the definition of employee can be stated open an employee of a company that has been working in India or outside India for at least 1 year and employee can also includes a director it can be a whole time director or not who has been working in India or outside India or holder company of the company.[7]. The company cannot return the share capital nor can the shareholder demand its repayment. (2) Since preference shareholders have restricted voting right, it is not advantageous to investors from the company’s control point of view. (iv) Preference shareholders do not have voting right, so they have no say in the management of the concern except in matters their interest. Shares are aka stocks. ADVERTISEMENTS: Equity shares were earlier known as ordinary shares. 4. This right of the equity shareholders is known as the pre-emptive right. (1) Since the rate of return is guaranteed, the investors who prefer safety of their capital and want to earn with greater certainty prefer to invest in these shares. They have a control over the working of the company. While the preference shareholders as the benefit of enjoying the voting rights in the major company decisions which includes mergers and acquisitions. [10] Law Gyaan, Procedure to issue Sweat Equity Shares under Companies Act 2013 (2017), http://lawgyaan.in/procedure-issue-sweat-equity-shares-companies-act-2013/ (last visited Apr 6, 2017). III.

Hello. 1. While issuing the Sweat equity shares the employees should be locked in non transfer label period for 3 years from the date of allotment. Financial Management, Types, Shares, Types of Shares. Under this, the fixed rate of dividend is paid first and then a reasonable rate of dividend is paid on equity shares. A share is a sole unit of the ownership in a company. The shares to be redeemed must be fully paid up. The preference shares helps in raising the long term capital for a company.

These preference share-holders can participate in the excess assets of the companies. The company has the right to should be kind of shares which are equity shares and preference shares. Deferred Shares. The equity shareholders get dividend after the dividend is paid to preference shareholders.

If these regulations are not obeyed then sweat equity shares will not be issued and not be listed with the company share capital and debenture rules 2014. The dividends cannot be claimed in the subsequent years. As per rule one of the company share, capital and debentures rule 2014 an employee has an actual and anticipated economic benefits under an expert to provide knowledge to whom to issue sweat equity shares. They get good dividend in prosperous years of the company. Equity shareholders are paid dividend after making payment to preference shareholders. (4) There is added advantage of repayment of capital wherever there is surplus in the company in case of redeemable preference shares. [18] Issuing of Shares with Differential Rights, Companies Act 2013, , https://novojuris.com/2014/05/06/issuing-of-shares-with-differential-rights-companies-act-2013/ (last visited Apr 18, 2017).

Under the preference shares the rate of return is guaranteed.

Content Filtrations 6. Moreover, when the company is winding up the distribution of the capital has to be done first to preference shareholders before equity shares. These shares were known as founder share because these were normally issued to founders. Additional, dividend can be paid to the profits after the payment of equity dividend. Equity Shares.

There shall be a valid issue of the equity shares so that when the allotment is being made within a period of time it should not face any difficulty and should be done within 12 months from the date of passing of the special resolution. The preference shareholders carry some rights to participate in the excess profit under which there is specified evident which paid on the equity shares.[2]. Your email address will not be published. [19] Capital of a Company, , http://www.legalserviceindia.com/company%20law/com_2.htm (last visited Apr 18, 2017). The Sweat equity shares are issued with the regulations made under securities and exchange board. (iv) Participating and Non-participating Preference Shares: In this case the shareholder participates in the surplus profit of the company. Image Guidelines 5. Want to become a writer at Law Times Journal? The company has the right to should be kind of shares which are equity shares and preference shares. Capital raised by the issue of preference shares is known as the preference share capital. [4] These are not stored in the terms of cash but these are used for providing the rights available under the nature of intellectual property.[5].

(5) There is no need to mortgage assets or property on these shares. The value of equity share can be known from the prevailing stock exchange.

It means that if there is more profit then they will receive more dividend and vice versa. They take risk both regarding dividend as well as return of capital. Conclusion: Thus the preference shares score over equity shares on the basis of the above comparison guide. Under the preference shares the rate of return is guaranteed.


The company has the right to should be kind of shares which are equity shares and preference shares. As per rule 8(1) of the Company’s Share, Capital and Debentures Rules 2014 Employee meanseval(ez_write_tag([[728,90],'lawtimesjournal_in-medrectangle-4','ezslot_0',112,'0','0'])); “(a) permanent employee of the company who has been working in India or outside India, for at least last one year; or, (b) A director of the company, whether a whole time director or not; or, (c) An employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company”. (3) In comparison to other fixed interest bearing securities such as debentures the cost of raising the preference share capital is higher. Enterprises get permanent capital from equity shares. The company will buy the shares by which the funds will be raised and will help the person for the startup or the expansion of the business. [5] Akshay Vernekar, ISSUE OF SWEAT EQUITY SHARES UNDER THE ACT OF 2013 (2016), https://www.linkedin.com/pulse/issue-sweat-equity-shares-under-act-2013-akshay-vernekar (last visited Apr 6, 2017). [15], Preference shares are of the following types-.

Under the convertible preference shares by shareholders are given the right to convert their Holdings into equity shares after the specified period. (ii) After making payment to outside creditors, preference share capital is returned. 1) Equity Shares.

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