Unit 3.

Share capital of
company (Share capital Chapter-4)
3.1 Meaning and nature of share
3.2 share capital its importance and types of
share capital.
3.3 Share and stocks, kinds of shares;
preference shares, Equity shares, Right
shares, Sweat equity shares, Bonus shares.
3.4 Powers/ rights of equity shareholders
3.5 Issue of shares; Private placement of shares,
Buy and offer for sale by inviting public
through prospectus and issue of shares to
the existing shareholders.
3.6 Share certificate; Transfer of shares and
forfeiture of shares and reduction of share
capital
3.1 Meaning and nature of share
Meaning

Business (capital investment in company)

Accounting (divided portion of the share capital in the
company)
Legal (bundle of rights and duties)
 ‘Share’ “means the divided portion of the share
capital of a company”. (Company Act, section 2(n)
 Share capital simply means the capital generated by
distributing shares.
 Each shares represent a fractional interest in the
total property possessed by the company.
 Share does not confer right to possess of physical
thing but only a bundle of rights to the members.
 Farewell J said in one case, “A share is the interest
of shareholders in a company measured by a sum of
money for the purpose of liability in the first place
and of dividend in the second”. (Borlands Trustee v.
steel, 1901,)
 “An interest measured by a sum of money and made
up of diverse rights conferred by articles.” (Supreme
Court of India)
 A share is right to participate in the profits made by
a company, while it is a going concern and declares
dividend, and in the assets when it is wound up.
 Share refers to the interest or stake a person has
in a company. This stakes or interest is in the form
of rights, privileges, restrictions, liabilities and
obligations as well as risks. A person's interest or
stake in a company has monetary value.

Nature of Shares

 Share is the most popular mode and long term

financing for the company.
 The shares of company are movable property and
commodity for exchange and are transferable (sold,
mortgage, bequeathed) in the manner provided in the
Articles of Association.
 It is incorporeal in nature and it consists merely of a
bundle of rights and obligations.
 Share is not ‘choose-in possession’ but ‘choose in
action’. Share is a property which one does not have
immediate possession but has a right to it, which can
be enforced by a legal action.
  The shares may be only one class or may be divided
into different classes of securities.
 Rights and liabilities as regulated by articles are of the
very essence of shares.
 A share is a symbol of ‘passive property’, the ‘active
property’ is under the control of the corporate
director/officer.

3.2 Share capital its importance and types of

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 Importance for (1) Shareholder (2) Company

 high liquidity in nature to individual

 limited risk
 Company do not have repayment requirement so it
is given more flexibility over its finances.
 Company is more freedom to use it share capital
whereas in case of loans and bonds, creditor can
limit the use of the funds they will lend to the
company.
 Raising capital is very flexible. Company can have
decided how may share is desired to issue, the types
of share, rights attached, it can also repurchase
issued shares if desired.
 Lower risk to company because shareholders cannot
force a company into bankruptcy.

 One of the attractions of raising capital via the sale of

shares is that the company does not have repayment
requirements for the initial investment or for interest
payments. This can make it more appealing than
other forms, such as bank loans and bonds, that are
debts of the company. Debts require the company to
make payments at regular intervals in relation to
interest, as well as eventually repaying the initial
amount that was borrowed. Any shares sold can
require a distribution of profits as a dividend but
these can be halted if necessary. Therefore, the
business is given more flexibility over its finances.
 Any money raised through the sale of shares can be
used by the company however it wants. There are no
stipulations or requirements attached to the funds. In
comparison a creditor can limit the use of the funds
they will lend to the company, which will restrict
how the company can use them.
 Raising equity via share sales is also very flexible.
The business has full control over how many shares
to issue, what to initially charge for them and when it
wishes to issue them. It can also issue further shares
in the future if it wishes to raise more money. The
 company can also decide on the type of shares it
issues and what rights these give the shareholders,
and it can also repurchase issued shares if desired.
 Another advantage is that there is a much lower risk
that the business will become bankrupt. Shareholders
cannot force a company into bankruptcy if it fails to
make payments (unlike creditors if the company fails
to repay interest).
Shareholders want the business to succeed and can
bring in skills and experience and assist with business
decisions.
The stock market is one of the most important
sources for companies to raise money. This allows
business to be publicly traded, or raise additional
capital for expansion by selling shares of ownership
of the company in a public market.
 Investing in share provides high liquidity in nature to
individual.
 Stock market enables individual to increase personal
wealth via dividend received from investment or
proceed from selling of share.
 Raise capital through stock market give advantage in
term of low cost of capital. (Abstains from a number
of the intermediation expenses apparent in the other
forms of capital rising)
  Stock market provides the opportunity for companies
to access to a widespread shareholder/investor. (both
local and international)

Types of share capital

Share Capital

Share capital consists of all funds raised by a

company in exchange for shares of either common
or preferred shares of stock. The amount of share capital
or equity financing a company has can change over time.
A company that wishes to raise more equity can obtain
authorization to issue and sell additional shares, thereby
increasing its share capital.
Share capital is only generated by the initial sale of shares
by the company to investors. It does not include shares
being sold in a secondary market after they've been
issued.
1. Registered, Authorized or Nominal Capital:
(Rs. 1,00,00,000)
The Memorandum of Association of every company has to specify
the amount of capital with which it wants to be registered. The
capital so stated is called Registered, Authorized or Nominal
Capital. The Registered Capital is the maximum amount of share
capital which a company can raise by way of public subscription.

2. Issued Share Capital: Rs. 50,00,000

(1,00,00,000 authorized capitals -50,00,000
issued capital= 50,00,000 unissued capital)
The company may not issue the entire authorized capital at once. It
goes on raising the capital as and when the need for additional
fund is felt. So, issued capital is that part of Authorized/Registered
 or Nominal Capital which is offered to the public for subscription
in the form of shares.

3. Unissued Capital: (1,00,00,000 authorized

capitals -50,00,000 issued capital= 50,00,000
unissued capital)
The balance of nominal capital remaining to be issued is called
Unissued Capital.

4. Subscribed Capital: Rs. 30,00,000

(50,000,00-30,00,000=20,00,000)
It is that part of “issued capital” for which applications are received
from the public. The subscribed capital is allotted to the respective
subscribers as per resolution passed by the directors of the
company.

5. Called up Capital: Rs. 20,00,000

(30,00,000-20,00,000 = 10,00,000)
It is that part of subscribed capital which has been called up by the
company. A company does not call at once the full amount on each
of the shares it has allotted and therefore, calls up only such
amount as it needs.

6. Uncalled up Capital: Rs. 10,00,000

(30,0,000-20,00,000)
It is the uncalled portion of the allotted capital and represents
contingent liability of the shareholders on the shares.

7. Paid up Capital: Rs. 15,00,000

 It is that part of called up capital against which payment has been
received from the members on their respective shares in response
to the calls made by the company.

8. Reserve Capital or Reserve Liability:

Reserve Capital means that amount which is not callable by the
company except in the event of the company being wound up. The
company cannot demand the payment of money on the shares to
that extent during its life time. Reserve capital may be created by
means of a special resolution passed by the company in its General
Meeting by three-fourths majority of those voting on it.

Sources of finance
3.3.2 Equity, Common (Ordinary)
Share
Meaning:
 “Ordinary share’ means a share other than a preference share.
Section 2(p)
 Equity shares are the main source of finance of a company. It is
issued to the general public. Equity shareholders do not enjoy
any preferential rights with regard to repayment of capital and
dividend. They are entitled to residual income of the company,
but they enjoy the right to control the affairs of the business and
all the shareholders collectively are the owners of the company.
 “Lion’s share of risk and lion’s share of profit”

Features of Equity Shares

1. They are permanent in nature.
2. Equity shareholders are the actual owners of the company and they
bear the highest risk.

3. Equity shares are transferable, i.e. ownership of equity shares can

be transferred with or without consideration to other person.

4. Dividend payable to equity shareholders is an out of profit of

business.

5. Equity shareholders do not get fixed rate of dividend.:

6. Equity shareholders have the right to control the affairs of the

company (voting right).

7. The liability of equity shareholders is limited to the extent of their

investment.

Advantages of Equity Shares

Advantages from the Shareholders’ Point of View

(a) Equity shares are very liquid and can be easily sold in the capital
market.

(b) In case of high profit, they get dividend at higher rate.

(c) Equity shareholders have the right to control the management of

the company.

(d) The equity shareholders get benefit in two ways, yearly dividend
and appreciation in the value of their investment.
Advantages from the Company’s Point of View:
(a) They are a permanent source of capital and as such; do not involve
any repayment liability.

(b) They do not have any obligation regarding payment of dividend.

(c) Larger equity capital base increases the creditworthiness of the

company among the creditors and investors.

Disadvantages of Equity Shares:

Disadvantages from the Shareholders’ Point of View:
(a) Equity shareholders get dividend only if there remains any profit
after paying debenture interest, tax and preference dividend. Thus,
getting dividend on equity shares is uncertain every year.

(b) Equity shareholders are scattered and unorganized, and hence they
are unable to exercise any effective control over the affairs of the
company.

(c) Equity shareholders bear the highest degree of risk of the company.

(d) Market price of equity shares fluctuate very widely which, in most
occasions, erode the value of investment.

(e) Issue of fresh shares reduces the earnings of existing shareholders.

Disadvantage from the Company’s Point of View:

(a) Cost of equity is the highest among all the sources of finance.
(b) Payment of dividend on equity shares is not tax deductible
expenditure.

(c) As compared to other sources of finance, issue of equity shares

involves higher floatation expenses of brokerage, underwriting
commission, etc.

Different Types of Equity Issues:

Equity shares are the main source of long-term finance of a joint stock
company. It is issued by the company to the general public. Equity
shares may be obtained through the following ways so that they can be
categorized accordingly;

(a) Promoter share

(b) Allotment share (initial public offering, IPO)
(c) Right share
(d) Bonus share
(e) Debenture share
(f) Premium share (section 29)
(g) Forfeited share

New share issue (Allotment share,

section 28)
A company issues a prospectus inviting the general public to subscribe
its shares. Generally, in case of new issues, money is collected by the
company in more than one installment— known as allotment and
calls. The prospectus contains details regarding the date of payment
and amount of money payable on such allotment and calls. A company
can offer to the public up to its authorized capital. New share issues
require the filing of prospectus with the Registrar of Companies and
with the approval of Securities board of Nepal.

Bonus Issue (section 179)

Bonus in the general sense means getting something extra in addition
to normal. In business, bonus shares are the shares issued free of cost,
by a company to its existing shareholders. Share issued as an
additional share to the existing shareholders by profit or reserved fund
instead of distributing as a dividend to existing shareholders.

“Bonus share’ means a share issued as an additional share to

shareholders, by capitalizing the saving earned from the profits or the
reserved funds of a company, and this term includes the increase of
the paid up value of a share by capitalizing the saving or reserve fund.”
(Section 2(q))

 Issues to the shareholders (section 179)

 Bonus share cannot issue by increasing share capital or
revaluating the assets of a company. (section 56(10))
 Must capitalize out of profit or reserve created for that purpose
(section 56(10))
 On AGM, special resolution to issue bonus share has to pass.
(section, 83(e), 179(1))
 Company must inform to the office prior to issuing bonus shares
(section 179(2)
 if a company has sufficient profits/reserves it can issue bonus shares
to its existing shareholders in proportion to the number of equity
shares held out of accumulated profits/ reserves in order to capitalize
the profit/reserves. Bonus shares can be issued only if the Articles of
Association of the company permits it to do so.

Advantage of Bonus Issues:

From the company’s point of view, as bonus issues do not involve any
outflow of cash, it will not affect the liquidity position of the company.
Shareholders, on the other hand, get bonus shares free of cost; their
stake in the company increases.

Disadvantages of Bonus Issues:

Issue of bonus shares decreases the existing rate of return and thereby
reduces the market price of shares of the company. The issue of bonus
shares decreases the earnings per share.

iii. Right share (Company Act,

section 56(7), (8), (9), (10), (11)

 The rights issue is the subsequent issue of shares by an existing

company to its existing shareholders in proportion to their
holding. Right shares can be issued by a company only if the
Articles of Association of the company permits. Rights shares are
 generally offered to the existing shareholders at a price below the
current market price, i.e. at a concessional rate, and they have
the options either to exercise the right or to sell the right to
another person.

 As a shareholder, he/she has three options with a rights

issue. (1) subscribe to the rights issue in full, (2) ignore the
rights, or (3) sell the rights to someone else.
 Companies most commonly issue a rights offering to raise
additional capital. A company may need extra capital to meet its
current financial obligations. Troubled companies typically use
rights issues to pay down debt, especially when they are unable
to borrow more money.

 However, not all companies that pursue rights offerings are in

financial trouble. Even companies with clean balance sheets may
use rights issues. These issues might be a way to raise extra
capital to fund expenditures designed to expand the company's
business, such as acquisition or opening new facilities for
manufacturing or sales. If the company is using the extra
capital to fund expansion, it can eventually lead to increased
capital gains for shareholders despite the dilution of the
outstanding shares as a result of the rights offering.

Section 56 (7) A public company shall publish a notice on the issue of

right shares, which may be subscribed by the existing shareholders only, in
a daily newspaper of national circulation for at least three consecutive
times prior to fifteen days of the issue of such shares.

(8) The existing shareholders shall have the first right to subscribed the
shares issued under Sub-section (7) in proportion to their respective
shareholding.

(9) Notwithstanding anything contained in Sub-section (8), no

shareholder of a company existing for the time being shall have the
first right over the following shares to be issued by the company:

(a) Shares issued by the company for any consideration other than
cash,

(b) Shares issued to any person under any right or facility provided in
accordance with the terms of an agreement concluded with the
company,

(c) Shares issued under an employee share scheme,

(d) Shares issued in accordance with an agreement concluded between

the company and its creditors,

(e) Shares existed on converting preference shares into ordinary

shares or debentures into shares by the company,

(f) Shares issued in accordance with an agreement between the

concerned parties in the course of management of the company,
restructuring of its capital or loan or in the course of implementation of
a restructuring program agreed upon between the relevant parties in
accordance with the prevailing law on insolvency or in the course of
implementation of a program of conversion of a public company into
another public company.

(10) No share capital shall be increased or bonus share issued by

revaluating the assets of a company other than from profits made by
the company or funds created out of profits.

(11) In issuing shares under this Section, a time limit of at least thirty-
five days shall be given to the existing shareholders to subscribe the
shares. If such shareholders fail either to subscribe the shares or to sell
or transfer the right to subscribe shares to anyone else within the said
time limit or, such shares may be sold in any other manner as decided
by the board of directors of the company.

Advantages of Rights Issue

Rights issues do not affect the controlling power of existing share-
holders. Floatation costs, brokerage and commission expenses are not
incurred by the company unlike in the public issue. Shareholders get
some monetary benefits as shares are issued to them at concessional
rates.

Disadvantages of Rights Issue

If a shareholder fails to exercise his/her rights within the stipulated
time, his/her wealth will decline. The company loses cash as shares are
issued at concessional rate.

Sweat (Share) Issue:

“No sweat, no sweet”
Sweat equity refers to a person or company's contribution to a startup or
business, which are non-monetary contributions such as time, physical
labor, expertise, etc. For this, they have provided an equity stake in the
company as a reward for their sweat equity.

Nepalese Company Act has not defined the sweat share but
according to Indian Companies Act, 2013, it means that 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 them know how or making available rights in the nature
of intellectual property rights or values addition, by whatever
name called.

Shares issued by a company to its employees or directors at a

discount or for consideration other than cash are known as sweat
issue. The purpose of sweat issue is to retain the intellectual property
and knowhow of the company. Sweat issue can be made if it is
authorized in a general meeting by special resolution.

In its very general term ‘Sweat Equity’ is an input to a project or

enterprise in the form of effort and labor. Sweat Equity is as
valuable as a cash equity. In case of a start-up of a company,
sweat equity is typically rewarded through distributing stock or
other types of equity in a new business. Sweat equity can be
given to the employees as rewards as well as in the context of
sweat equity in real estate which refers to a value-enhancing
improvement made by homeowners to their properties.
The new era is keen to keep their best employees who bring in
their expert knowledge, know-how as well as technical expertise
that adds to the business value of the company. Therefore, in
order to keep them involved and motivated towards the
company, the companies go an extra mile to reward them by
giving them sweat equity/.

Under the section 9(3) of the company Act, in case of private

company, any employee who has purchased a share of a company
under a scheme of selling shares to employees or any employee who
has already purchased a share under such scheme but is not in service
of the company for the time being shall not be counted as a
shareholder.

Under section 56(9), the existing shareholders do not have first

right over the share issue under an employee share scheme (sweat
share).

Generally, following condition are met while issuing sweat

share;

 Sweat Equity issues should be authorized by a

special resolution.
 The resolution should contain information about the
number of shares, current market value of the
shares, consideration and to the class of employees
or directors to whom the shares are being issued.
 The special resolution has to act within 12 months of
passing otherwise it will be rendered invalid and a
fresh resolution has to be passed again.
  Sweat Equity shares shall be issued in accordance
with the SEBI regulations.
 The rights, limitations, restrictions and provisions
which are applicable to equity shares shall also be
applicable to sweat equity shares.
 The sweat equity shares which are issued to directors
and employees shall be locked in and is non-
transferable for a period of three years. The non-
transferability of the shares shall be mentioned in
bold on the share certificate.

Advantages of Sweat Issue

Sweat equity shares cannot be transferred within 3 years from the
date of their allotment. It does not involve floatation costs and
brokerage.

Disadvantage of Sweat Issue

As sweat equity shares are issued at concessional rates, the com-
pany loses financially.

Preference shares (Company Act,

section 2(O), 65)

Preference shares are one of the special types of share capital having
fixed rate of dividend and they carry preferential rights over ordinary
equity shares in sharing of profits and also claims over assets of the
company. It is ranked between equity and debt as far as priority of
repayment of capital is concerned.
MEANING OF PREFERENCE SHARE

 Preference shares are those which have some preferences as

compare to the ordinary share.
 “Preference share” means a share issued as preference share
pursuant to this Act. Section 2(o)
 There is no universally accepted standard formula for such terms
of preferences for preferential shares.
 According to18(f), MOA should consist the “Categories of shares”
which the company can issue.
 According to section 65 of the Company Act, company may issue
preference share as prescribed in the Act, MOA or AOA.

 They are neither completely similar to equity nor equivalent to

debt. The law treats them as shares but they have elements of both
equity shares and debt. For this reason, they are also called
‘hybrid financing instruments’. These are also known as
preferred stock, preferred shares, or only preferred in a different
part of the world. There are various types of preference shares used
as a source of finance. Some of the features are of debt and others
are of equity. It makes sense to discuss the features similar to debt
and equity separately.

FEATURES OF PREFERENCE SHARES SIMILAR TO DEBT

FIXED DIVIDENDS

Like debt carries a fixed interest rate, preference shares have fixed
dividends attached to them. But the obligation of paying a dividend is
not as rigid as debt. Non-payment of a dividend would not amount to
bankruptcy in case of preference share.
PREFERENCE OVER EQUITY SHARE
As the word preference suggests, these type of shares get preference
over equity shares in sharing the income as well as claims on assets.
Alternatively, preference share dividend has to be paid before any
dividend payment to ordinary equity shares. Similarly, at the time
of liquidation also, these shares would be paid before equity shares.

NO VOTING RIGHTS

Preference share capital is not allotted any voting rights normally. They
are similar to debenture holders and do not have any right in the
management of the company.

NO SHARE IN EARNINGS

Preference shareholders can only claim two things. One agreed on

percentage of dividend and second the amount of capital invested.
Equity shares are entitled to share the residual earnings and residual
assets in case of liquidation which preference shares are not entitled to.

FIXED MATURITY

Just like debt, preference shares also have fixed maturity date. On the
date of maturity, the preference capital will have to be repaid to the
preference shareholders. A special type of shares i.e. irredeemable
preference shares is an exception to this. They do not have any fixed
maturity.

FEATURES OF PREFERENCE SHARES SIMILAR TO

EQUITY SHARES
DIVIDEND

Equity share dividend is paid out of the profits left after all expenses and
even taxes and same is the case with preference shares. The preference
dividend is paid out of the divisible profits of the company. Out of the
divisible profits, the preference dividend would be paid first and the
remaining profits can be utilized for paying any dividend to equity
shareholders.

MANAGEMENT DISCRETION OVER DIVIDEND PAYMENT

The payment of preference dividend is not compulsory and is a decision

of the management. Equity shareholders also do not have any right to
ask for dividends, the dividends are paid at the discretion of the
management of the company. Unlike debt, the nonpayment of a dividend
of preference shares does not amount to bankruptcy.
NO FIXED MATURITY

The maturity of a special variant of preference share is not fixed just like
equity shares. This variant is popularly known as irredeemable
preference shares.
65. Preference shares:
(1) A company may issue preference shares as provided for in
this Act, memorandum of association or articles of
association.
(2) Except as provided in the articles of association, no shares
issued pursuant to Sub-section (1) shall be converted into
ordinary shares.

(3) In issuing preference shares pursuant to Sub-section (1), the

following maters, inter alia, shall be disclosed:

(a) Whether preference is given to receive dividends against

ordinary shares;
(b) Percentage of dividends receivable by preference
shareholders;

(c) Whether dividends get cumulated every year (cumulative)

or profits are distributed only in a year wherein profit is made
(non-cumulative);

(d) Whether preference is given while paying amount of share

in the event of liquidation of company;

(e) Whether voting right is attached there to; and if voting right
is attached, whether such right is available only in the case of
preference share or also in other matters;

(f) Whether voting right is available also in other matters

pursuant to Clause (e) , the proportion to which such right is
exercisable;

(g) Whether preference shares can be converted into ordinary

shares;

(h) Whether the amount of preference shares can be

redeemed (redeemable) or cannot be redeemed
(irredeemable) after a certain period;

(i) Whether, in redeeming preference shares, premium is

payable on redemption.

(4) Where any redeemable shares are issued, the shares shall
not be redeemed unless they are fully paid.
(5) No amount of preference shares shall be redeemed except
out of profits which would otherwise be available for dividend
or out of the proceeds of a fresh issue of shares made by the
company for the purposes of the redemption.

(6) Where a premium is payable on the redemption of any

redeemable preference shares, there shall be provided for a
separate fund out of the profits of the company or out of the
company’s shares premium account, for the purposes of
redemption of such shares.

(7) Except in cases where any redeemable preference shares

are redeemed out of the proceeds of a fresh issue of shares
pursuant to sun-section (5), while redeeming preference
shares pursuant to this Act, a capital redemption reserve
account shall be established and a sum equal to the nominal
amount of the shares redeemed shall be transferred to that
account, out of profits which would otherwise have been
available for dividend.

(8) The capital redemption reserve account established

pursuant to Subsection (7) shall be maintained as if it were
the paid–up capital.

(9) After the completion of the redemption of any preference

shares redeemed pursuant to this Section, such shares shall
be deemed to have, ipso facto, been cancelled.

(10) A company shall while redeeming any preference shares,

follow such terms and procedures as provided by the articles
of association of the company, subject to this Section; and
 such redemption of preference shares shall not be taken as
reducing the amount of authorized share capital of the
company.

(11) Where a company has redeemed or is about to redeem

any preference shares, it shall have power to issue new
shares up to the nominal amount of the shares so redeemed
or to be redeemed.

(12) Where a company has redeemed any preference shares,

the company shall give information thereof to the Office
within one month of such redemption; and on receipt of such
information, the Office shall record such information in the
company register.

(13) Notwithstanding anything contained elsewhere in this

Section, a company may issue new shares to its shareholders
as fully paid bonus shares, out of the capital redemption
reserve funds established pursuant to Sub-section 7.

3.4 Power/rights of equity

shareholders
Being an equity shareholder, one may entertain
following rights-

 Right to get dividend (section 182)

 Right to transfer share (section 42)
  Attendance in meeting and voting in different
issues (section 71)
 Right to inspect company books or account
(section 25)
 Sue against company if company has derailed
his/her personal right provided by Act or
MOA/AOA
 Power to appoint and remove the directors
(72)
 Power to appoint auditor (section 111)
 Calling of meeting
 Power to make amendment of MOA/AOA
(section 21)
 Sui against wrongdoer of the company
(section 138)

3.5 Issue of shares; (To whom,

Why, how,when? )
(1) Private placement of shares,
(2) Buy and offer for sale by inviting
public through prospectus (Initail
Public Offering, IPO)
(3) Issue of shares to the existing
shareholders ( right shares, bonus
shares)

(1) Private placement

 Private placement is defined as any offer or
invitation to subscribe or issue of securities to a
select group of persons by a company (other
than by way of public offer) through Private
Placement Offer-cum-Application.
 A private placement is an agreement for equity
investment in a company made directly
between the company and the investor.
 Private placement is in the simplest terms, a
way for company to raise capital by selling
shares to private investors rather than making
shares in a company available to the general
public (as with an Initial Public Offering, IPO)
 It makes shares available to only a limited
number of suitable individuals.
 It does not require underwriters, brokerage or
registration with the security board.
 While often used by small companies or even
big companies, private placement is equally
beneficial to companies of all sizes because
 they require less time and expense than public
offering.

(2) Issue of share to the existing

shareholders (Right issue 56(7),(8),
(9),(10),(11), Bonus share section
179)

(3) Buy and offer for sale by inviting

public through prospectus (Initail
Public Offering, IPO) (section 23, 24,
28,)

 Issue of prospectus
 Receiving application form
 Allotment of shares

Allotment of share
 (Prospectus) (application form)
Invitation to offer Offer
Acceptance (Allotment of share)
Dividend

 Minimum subscription
 Collection of application money and deposit on
separate bank account
 Permission for listing shares and dealing through a
security dealer
 Return of share allotment to Company Registrar
Office
 Issue of Share Certificate

 The minimum subscription is a amount which in the

option of the Board of directors must be raised by
the issue of shares so that the company has
necessary funds to carry out its objects.
 A company can not allot any security to the public
unless the minimum subscription stated in the
prospects has been subscribed or raised.
 Shares are issued to the public by well managed and
financially strong companies through Initial public
offering.
 A new share allotment is one of the main ways for a
company to raise new finance. Compared to share
transfer where no new money is received by the
company, a share allotment can provide funds to
expand or otherwise advance the business.

(1) Equivalent subscription

it is a situation when the number of shares
applied for is equal to the shares offered to
the public for subscription.
(2) Under-subscription
It is a situation when the number of shares
applied for is less than shares offered to the
public for subscription.
(3) Over Subscription
 It is a situation when the number of shares
applied for is more than shares offered to the
public for subscription.
Section 28. Allotment of shares:

(1) Where a public company invites the general public

to apply for the subscription of its shares it shall allot
the shares and give the shareholders a notice in the
format as prescribed, within a maximum period of
three months after the date of closure of share issue.
Provided, however, that in cases where at least fifty
percent of the total shares issued publicly cannot be
sold failing a guarantee/underwriting agreement on
the subscription of at least fifty percent of the publicly
issued shares, no shares shall be allotted.

(2) If the company makes an application, explaining

the reasons for failure to allot shares within the time-
limit set forth in Sub-section (1), owing to the
circumstance mentioned in the proviso to that Sub-
section within seven days after the expiration of that
time-limit, the Office may extend the time limit for up
to three months for the allotment of shares. If the
shares cannot be allotted even within such extended
time limit, the company may allot such shares
through negotiations or any other methods.

(3) If the allotment of shares cannot be made even

within the time –limit as referred to in Sub-section
(1) or (2), the amount received for the subscription of
shares as well as an interest thereon, as prescribed,
from the day of expiration of such time-limit to the
day of refund of such amount shall be refunded.
(4) If the funds are insufficient to refund the amount
required to be refunded pursuant to Sub-section (3),
the shortfall amount shall be borne by the promoters
personally.
(5) Where the allotment of shares pursuant to Sub-
section (1) or (2) is made discriminatorily or with
intent to cause any loss or damage to any investor
may file a petition, setting out the reasons for the
same, in the court on that matter.
(6) If a petition is filed pursuant to Sub-section 5),
where any investor has sustained any loss or damage
by reason of the deliberate violation of this Section by
any officer of the company or permission given by
such officer to anyone to commit such violation, the
court may issue an order for realization from such
officer personally of compensation for such loss or
 damage as well as reasonable expenses incurred in
the legal action.

Company may issue a share in following

three ways; (How ?)
(a) At par
When a company issue a share at amount
to its face value.
(b) At premium (Company Act, section 29)
When a company issue a share at amount
higher than its face value.
(c) At discount (Company Act, section 64)
When a company issue a share at amount
lower than its face value.

29. Power to issue shares at premium: (1)

Any company fulfilling the following conditions may,
with the prior approval of the Office, issue shares at a
premium:
(a) The company has been making profits and
distributing dividends for three consecutive years,
 (b) The company’s net worth exceeds its total
liabilities,
(c) The company’s general meeting has decided to
issue shares at a premium.
(2) Where the shares are sold at a premium pursuant
to Sub-section (1), a sum in excess of the face value,
out of the proceeds thereof, shall be deposited in a
premium account to be opened to that effect.
(3) The company may use the moneys in the account
as referred to in Sub-section (2) in the following acts:
(a) Paying up un-issued share capital to be issued to
the shareholders as fully paid bonus shares,
(b) Providing for the premium payable on
redemption of any redeemable preference shares,
(c) Writing off the preliminary expenses made by the
company,
(d) Bearing or reimbursing the expenses of, or the
commission paid or discount allowed on, any issue of
shares of the company.
(e) In making a request for approval of the Office to
issue shares at a premium pursuant to Sub-section
(1), the audited financial statements for three years
shall be provided to the Office.
64. Prohibition on issue or sale of shares
at a discount:
 (1) A company shall not issue or sell its shares at a
discount.
(2) Notwithstanding anything contained in Sub-
section (1), a company may, on the following
conditions, issue or sell shares at a discount by
adopting a special resolution at the general meeting
to that effect, not being less than the percentage
specified in that resolution:
(a) In issuing or selling shares pursuant to a capital
restructuring scheme of the company,
(b) In issuing or selling shares pursuant to a scheme
of converting loans borrowed by the company into
shares with the consent of creditors;
(c) In issuing or selling shares pursuant to an
employee share scheme;
(d) In issuing shares on such other conditions as
approved by the Office.

3.6 Share certificate; Transfer of

shares and forfeiture of shares and
reduction of share capital

(A) Share Certificate (section 33)

  A share certificate is a written document signed on
behalf of a company that serves as legal proof of
ownership of the number of shares indicated. A share
certificate is also referred to as a stock certificate.
Share certificates are documents issued by
companies that sell shares in the market.
 A shareholder receives a share certificate as a receipt
of his or her purchase and to reflect ownership of a
specified number of shares of the company.
 In today's financial world, physical share certificates
are issued only rarely, with digital records replacing
them in most cases.

Key information on a share certificate includes:

 Certificate number
 Company name and registration number
 Shareholder name and address
 Number of shares owned
 Class of shares
 Issue date of shares
 Amount paid (or treated as paid) on the shares

Section 33 Share certificate

(1) A share certificate in the prescribed format shall be
issued to every shareholder in respect of each share
subscribed by him/her, within two months after the
allotment of shares; the share certificate shall bear
the signature of any two out of a director or chief
 executive of the company or the company
secretary, in the case of a public company, and the
signature of the person as mentioned in the articles
of association or consensus agreement, in the case
of a private company, and also bear the seal of the
company, if any.
(2) While issuing a share certificate in respect of any
shares held jointly by two or more persons, the
share certificate may be issued to any one of them,
by mentioning their names in the certificate.
Provided, however, that, the names of all
shareholders shall be mentioned in the shareholder
register.
(3) If a share certificate is lost or destroyed because of
a divine act or otherwise, the shareholder shall give
information thereof to the registered office the
company immediately when he/she knows that the
share certificate has been so lost or destroyed
because of the divine act or otherwise.
(4) If any application made pursuant to Sub-section (3),
the company shall, if the matter contained in the
application seems to be reasonable after inquiring
into all necessary matters relating thereto, issue
 another share certificate to the applicant, by
collecting the duplicate fees for duplicate copy as
prescribed in the articles of association; and this
matter shall also be recorded in the shareholder
register.
(5) Notwithstanding anything contained elsewhere in
this Section, if a listed company has caused a
register to be maintained, pursuant to Sub-section
(6) of Section 46, by the securities registrar
authorized to provide securities deposit service
under the prevailing law, provision may be made to
issue to the shareholder a securities deposit
passbook or any other certificate certifying him/her
to be a shareholder, instead of a share certificate.
(6) A certificate issued by a company, signed by its
competent officer and under the seal of the
company, if any, to be used by it, specifying the
number of shares or debentures held by any
shareholder or debenture-holder shall be prima
facie evidence of his/her title to such shares or
debentures.
(7) If any company allots any shares or debentures or
transfers such shares or debentures to a
 representative of a body licensed under the
prevailing law to carry on securities dealings, the
provision of Sub-section (1) shall not apply to such
shares or debentures.
(B) Transfer of shares ( section 42)
 Different between issue of shares, transmission of
share and transfer of share.
 There may be times when it is needed to change the share
structure of company; either by adding a new shareholder
or by changing the existing proportion of shares between
shareholders.
 Transfer of shares means the transfer of ownership of the
shares from one person to another. Transfer of shares is
effected by removing the name of the existing shareholder
from the register of members and by inserting the name of
the transferee in place of the transferor in the register of
members.
 Shares of a public company are freely transferable whereas
there are certain restrictions on the transfer of shares of a
private company.
 Shares can be transferred from a shareholder to another
person (either a new or existing shareholder). Shares are
transferred by way of gift or sale. Typically, shares are
transferred to introduce a new shareholder.
 There is no any standard formula or procedural for transfer
of share for all companies. The procedural for transfer of
 share may be differed as the types of company like private,
single-man, public company or listed or unlisted company.
 Share transfer involve two steps, sale contract and
registration of share.
 The return of transfer of share need to file to Company
Registrar Office.
Persons involved in the transfer
o Subscribers to the memorandum.
o Legal Representative, in case of a deceased.
o Transferor.
o Transferee.
o Company (whether listed/ unlisted).

(d) Forfeiture of shares (Section 53)

 Forfeiture of share means the cancellation of the

shares for non-payment of calls due. But, the
company can forfeit shares only if the Article of
Association of the company allow forfeiture. If
any shareholder is not able to pay the amount of
call, the company may exercise the power to
forfeit his shares on which he is unable to pay the
amount of call.
Procedure for forfeiture of shares
  The authority to forfeit shares is given to the
board of directors(BOD) in AOA of the
company.
 The BOD has to give minimum days notice to
the defaulting members calling upon them to
pay outstanding amount with or without interest
as the case may be before the specified date.
 The notice must also state that if the
shareholders fail to remit the amount mentioned
therein within the stipulated period, their shares
will be forfeited.
 If they still fail to pay the amount within the
specified period of time, the board of directors
of the company may decide to forfeit such
shares by passing a resolution.
 The decision regarding the forfeiture of shares
should be communicated to the concerned
allottess.

(e) Reduction of share capital (section 57, 58

and 59) (Why and How?)
Sep302019
About Companies6 Min Read
A reduction of capital occurs where a company reduces the
amount of its share capital. A company may reduce its share
capital in a variety of ways, for example, it can extinguish or
reduce the liability on any of its shares in respect of share capital
not paid up, or repay any paid-up share capital in excess of the
company’s wants.

A company can reduce its share capital by reducing the number

of shares in issue, the nominal value of shares in issue or the
amount paid up on the shares in issue.

A company may want to reduce its share capital for various

reasons, including to create distributable reserves to pay a
dividend or to buy back or redeem its own shares; to reduce or
eliminate accumulated realized losses in order to be able to make
distributions in the future; to return surplus capital to
shareholders.

There are a number of reasons why a company might

want to reduce its share capital:

 Reduce liability: the most common reason is to

reduce the number of shares to a more manageable
level, i.e. to reduce liability.
 To eliminate losses: as a company can only pay a
dividend from surplus profits, eliminating
accumulated losses which would otherwise
prevent these payments is sometimes desirable.
 To return surplus capital: if a company has a
surplus of cash or assets, these may be paid
 directly to shareholders by cancelling the shares
issued to them.
 To support share buy-back or redemption: if a
company wants to buy back or redeem shares out
of its distributable profits, it may carry out a
reduction of capital in order to create enough
distributable profits to do so.
Section 57. Reduction of share capital:
(1) If a company intends to reduce its share capital, it may, by
adopting a special resolution to that effect at its general
meeting, reduce its share capital by obtaining approval of the
Court and making necessary amendment to or alteration in
the memorandum of association and articles of association,
accordingly.
(2) On receipt of approval of the Court pursuant to Sub-section
(1), the company may reduce its share capital as follows:
(a) By reducing the capital to such amount as has been paid up
where calls for payment of amount on shares are not fully paid
up,
(b) By paying back any paid-up share capital,
(c) By devaluating the face value of shares where the company
has sustained a big loss or suffered a natural calamity.
(3) Notwithstanding anything contained in subsection (2), a
company which has already become insolvent in accordance
with the prevailing law shall not reduce its capital pursuant
to this Section.
Procedural for reduction of share capital
(section 58)

Pass a special resolution

Apply to court to confirm the special resolution

If reduction involves one of the first two methods

above, court must require company to settle a list
of creditors entitle to object.

The Court must not confirm the reduction until it is

satisfied that all creditors have either consented to
the reduction or had their debts discharged or
secured.

The company must file documents with the

Company Registrar, if the share capital of a public
company falls below Rs. 1,00,00,000, it must re-
register as a private company.
Unit 4 Prospectus ( Company Act,
section 2(m), 23, 24, 28(1), 160(f), Security
Act 2063, section 30, 31, 32, 33 )
4.1 Meaning and features of prospectus
 The investor wants a sound concerns,
prospectus is one of the means by which
he/she is informed at the soundness of the
company’s venture.
 Prospectus is an invitation issued to the public
to take shares or debentures of the company.
 Objective behind publishing company’s
prospectus prior to issuing its securites are-
(a) On the side of company
 Raising Capital from public
 Admission of security to trading on a regulatory
market.
(2) On the side of investor
 To get full accurate and truth information of
figures of any profits or losses or asset and
liability of company
 To protect public/investors from
misrepresentation or omission while investing
in company.
 To make company more accountable
 “ Prospectus” means a prospectus to be
published by a company pursuant to section 23.
Section 2(m)
 A prospectus means any documents described
or issued as prospectus and includes any notice,
circular, advertisement or other document
inviting deposit from public or inviting offer
from the public for the subscription or purchase
of any shares in or debenture of body
corporate. Indian Company Act, 2(36)
 Possibility or opportunity to directors or
promoters to impose a fraud on the public.
 The Company Act, accordingly now, contains a
comprehenive set of reglation intended to
protect the investing public from such
victimization.
 The aim of the Act in making rules issuing
prospectus is, to secure the fullest disclosure of
all material and essential particular and lay the
 same in full view of the intending purchases of
shares.

The features and characteristics of the prospectus

are:

(i) It is a document issued as a prospectus

(ii) It includes any notice, circular,
advertisement inviting deposits from the
public
(iii) It is an invitation to the public
(iv) The public is invited to subscribe to the
shares or debentures of the company
(v) It is a document by which the company
procures its share capital needed to carry on
its activities

4.2 Content of prospectus (Security Act,

2063, section 30, 31, 32)
(a) The contents of the Memorandum:
It expresses the name of the company, objects, nature of
business, share capital and its division, liability of
members, names and addresses of the signatories and the
number of shares subscribed by them.

(b) The qualification shares of the Directors:

If the Articles of the company provides that certain
minimum number of shares to be possessed by the
directors as qualification, in that case, a person shall not
be qualified to act as a director unless he holds such
number of shares.

(c) No. of redeemable preference shares:

Particulars regarding debentures and redeemable
preference shares with their date of redemption must be
stated.

(d) Remuneration of the Directors and Promoters:

The prospectus must contain the rate of remuneration for
attending meetings and for other services of the Directors
and Promoters.

(e) The names, descriptions and addresses of the

Directors and Managing Directors:
The names, addresses, descriptions, occupations of the
Directors, Managing Directors, Managers and the
provisions regarding their appointment must be stated.

(f) The Minimum Subscription:

The minimum subscription on which the directors may
proceed to allotment and the amount payable on
application, allotment etc. on each share should also be
stated in the prospectus.

(g) Time of opening:

The time of the opening of subscription list should also be
stated.

(h) Underwriting Commission, Brokerage etc.:

The names of underwriters and the opinion of the
directors regarding their financial position and business
integrity should also be stated clearly.

(i) Names of the auditors with their addresses:

The reputation of the auditors is also an important factor
necessary for public patronage.

(j) Particular of Contracts:

The dates of and parties to every material contract, and
reasonable time and place of its inspection are also
significant.

(k) Preliminary Expenses:

The estimated amount of preliminary expenses to be
incurred should also be furnished.

(l) Particulars of Directors:

Full particulars of the nature and interest of every director
or promoter in the promotion of or in the property
proposed to be acquired by the company within two years
with statement of all sums paid or agreed to be paid to him
in cash or shares for service rendered.

(m) Disclosure:
Full disclosure on these matters should also be made in
the prospectus.

(n) Expected rate of dividend and voting rights:

The rights of shareholders relating to voting, meeting and
dividends along with the nature and extent of restrictions
to be imposed by Articles on their right to transfer shares
should also be stated in clear and convincing terms.

(o) Capitalization of Profits and Surplus from

revaluation of assets:
Capitalization of profits/reserves of a company or if any of
its subsidiaries have been capitalized (i.e. issuing bonus
shares)— particular of such capitalization and also surplus,
if any, assets from the revaluation of assets should also be
stated.

(p) Inspection of Balance Sheet and Profit and

Loss Account:
The following reports are to be annexed:

(a) Report by the Auditor:

An audit report of the company relating to:
(i) Its profits .and losses, assets and liabilities,
(ii) The dividend paid by the company during the five
financial years preceding the issue of prospectus should
also be furnished.

(b) Report by the Accountant:

The accountant should also state a report relating to
profits or losses and assets and liabilities on a date which
must not be more than 120 days before the date of issue of
the prospectus.

4.3 Liabilties for the Misstatement in

prospectus(Company Act, section 24, 160(f),
Securities Act,section 33)
 If published prospectus contains untrue statements
and any person sustain any loss or damage, the
directors who have signed that prospectus shall be
personally liable to pay compensation for the actual
loss or damage so sustained. (Section 24)
 Any director or officier who issues the prospectus of
a company prior to its being registered with office
who gives false details in the prospectus shall be
punished with fine not exceeding fifty thousand
rupees or with imprisonment for a term not
exceeding two years or both. Section 160(f)
  Cheating, false statement particularities in
prospectus make institution signaturies, directors
preparing it will be individually or collectively liable
for it and liable for compensation to the subscribers
being based on it. (Security Act, section 33)

4.2 Underwriting and Brokerage contract

(Company Act 2063, Security Act,
2063)
 Underwrites, underwriter,
underwriting contract,
 Broker, brokerage contract
Section 32. Dealing in securities:
(1) While issuing its securities to the general public, a
public company shall deal in the securities only
through a securities dealer recognized to do
securities transactions including all acts such as the
sale, allotment and recovery of amounts of such
securities.
 (2) A public company shall file with the Office a copy
of an agreement made by it on the dealing of
securities through any body, within seven days after
the date of making of such agreement.
Security Act, section 56 License to be obtained to
carry on securities business: (1) A company or body
desirous of carrying on securities business has to
obtain a license to carry on securities business from
the Board pursuant to this Act. (2) No one shall carry
on securities business without obtaining a license to
carry on securities business from the Board pursuant
to this Act.
Security Act section 63 Types of securities
business: (1) For the purposes of this Act, the securities
business shall be divided into the following types: -
(a) Securities brokerage,
(b) Securities trade,
(c) Issue and sales management,
(d) Investment management,
(e) Investment consultancy service,
(f) Collective investment fund management,
(g) Securities registration or securities central
deposit service or custodial service,
(h) Service relating to the settlement of the account
of securities transactions,
(i) Market maker,
 (j) Such other business as may be specified by the
Board to be a securities business.
 Underwriting is an agreement, with or without
condition, to subscribe to the securities of a body
corporate when existing shareholders of the company
or the public do not subscribe to the securities offered
to them.
 A company may enter into an underwriting or
brokerage agreement for the sale of its shares and
debentures. An underwriter guarantees that if the
public do not take up all the shares, the underwriter
will himself purchase the remaining shares and thus
the company is able to obtain subscription for all the
shares issued. The underwriting agreement may be
considered the contract between a company issuing a
new securities issue, and the underwriting group that
agrees to purchase and resell the issue for a profit.
 The contract is generally between the company
issuing the new security and investment bankers who
form a syndicate. A syndicate is a temporary group of
financial professionals formed to handle a large
financial transaction that would be difficult to handle
individually.
 The underwriting agreement contains the details of
the transaction, including the underwriting group's
 commitment to purchase the new securities issue, the
agreed-upon price, the initial resale price, and the
settlement date.
 The company undertakes to pay an underwriting
commission for the services rendered by the
underwriters. Underwriting commission should not
exceed 5 per cent of the nominal value of a share and
2½ per cent in the case of debentures.
 A brokerage contract is different from an
underwriting contract. A broker undertakes only to
find buyers who are willing to buy shares and
debentures and does not guarantee the sale of a
specified number of securities (shares, debentures).
Thus, if shares and debentures could not be sold by
the company, the broker will not buy the securities
which have not been subscribed for.
 The process of underwriting a stock or a bond issue
requires that the investment banker purchase the
entire offering at a predetermined price and then
resell the offering (securities) in the market. The
services provided during this process includes;
- Giving Advice
- Filing documents
- Underwriting, best efforts, or private placement
Unit 6 Dividends (Company Act section 182, 183)
6.1 Meaning of dividend
6.2 Declaration of dividend and its procedural
6.3 Payment of dividend, interim Dividend, unpaid and
Unclaimed dividend and their status
6.4 Repatriation of Dividend under Foreign Investment and
Technology Transfer Related Laws
Meaning and defination of Dividend
 The term Dividenturm is derived from latin word means
“which is to be divided”. Every business concern is to earn
profit. These profits are distributed amongs its members in
the from for dividend. Dividend refers to that portion of
profit which is distributed among the shareholders of the
company.
 Dividend means the portion of the profit of the company
which is allocated to the holders of shares of the company.
 Dividend is that portion of corporate profit which has been
asided and declared by the company as liable to be
distributed among the shareholders.

Features of shares
 Dividend is a portion of profit paid to the shareholders.
  Dividend is payable only out of the profits of the company.
 The rate of dividend may vary from year to year( except
preferene shares) as profits vary.
 Dividend is not allowed to be declared and paid out of capital of
company.
 Dividend is recommended by the board of directors and declared
by the shareholders in AGM.
 Dividend is reward given to the shareholders on their investment
in the company.
Mode/forms of declaration
Dividend can be declared out of three sources;

 Firstly, it can be declared out of the profits of the company for that year
arrived at after providing for depreciation in accordance with the provisions
of the Act.
 Secondly, out of the profit of the company for any previous financial year or
years arrived at after providing for depreciation in accordance with those
provisions and remaining undistributed (retained earnings) or
 Thirdly, out of both

Declaration and procedural for payment of

Dividend
 Convening the board meeting after finalization of accounts
 Resolution by the board.
 Ensuring the various provision of the Act are complied
 Convening shareholder’s annual general meeting
 Payment of declaration made by AGM
 Rate of dividend shall not exceed the rate recommended
by the board of directors.
 Preparation of dividend list
 Posting of dividend warrants
 Public notice to share warrant holder
 Within 45 days of the decision made to provide dividend.
 Failure to distribute a dividend within 45 days, the
dividend shall be distributed together with the interest.

Circumstances under which dividend need not be paid

a. Where it could not be paid because of operation of any
law;
b. Where a shareholder has given direction to the
company regarding payment of dividend and those
directions could not be complied with;
c. Where there is a dispute regarding the right to receive
the dividend;
d. Where the dividend has been lawfully adjusted by the
company against any sum due from the shareholders; and
e. Where the dividend could not be paid not due to any
default on part of the company.

Unpaid dividend

 The dividend is declared by the company but not paid to

the shareholders within prescribed time of 45 days from
its declaration is called unpaid dividend.
 In the event of failure to distribute a dividend within the time
limit as referred to in Sub-section (1), the dividend shall be
distributed together with the interest thereon at such rate as
may be prescribed. Section 182(3)

Unclaimed dividend
 The dividend is declared by company but not collected by
a shareholder is known as unclaimed dividend.
 The amount of dividend not claimed/received by any
shareholder even after the expiry of a period of five years after
the date of resolution adopted by the company in its general
meeting to distribute dividend shall be credited to the investor
protection fund to be established under Section 183. Section
182(9)
 In crediting the amount as referred to company shall, prior to
the expiry of the period mentioned in that Sub-section, publish
a notice in a national daily newspaper inviting the concerned to
receive the dividend, within the time limit of at least on month.
Section 182(10)
 The amount credited to the fund established pursuant to
Subsection (1) may be spent for the improvement in the capital
market, investment policy, companies law or law relating to
trade, business and profession, training to the employees of
the Office or the company or in any other activity relating to
the company administration. Section 183(2)
 The management an operation of the fund established
pursuant to Sub-section (1) shall be as decided by a committee
consisting of the Registrar, the Chairperson of the Securities
Board or his/her representative and one representative
appointed by the Securities Board from amongst the
organization operating the stock exchange. Section 183(3)

Interim dividend
 Interim dividend means the dividend which is declared
between two annual general meeting of the company.
 Interim dividend is declared when company makes
substantial profit in the first six months.
 Interim dividend is declared by the board of directors
 Subject to the various provisions contained in this Section,
the board of directors of any company may, in the
 following circumstance, distribute interim dividend out of
the profits for the previous financial year (Section 182(7))

(a) where the articles of association contain a provision on

the distribution of interim dividend;

(b) where the annual financial statement for the financial

year out of the profits of which year interim dividend is to
be distributed has already been certified by the auditor
and approved by the board of directors.

Tax payment
In addition to the income tax chargeable in respect of the total income of a company for any
assessment year, any amount declared, distributed or paid by such company by way of
dividends (whether interim or otherwise) and also whether paid out of current or accumulated
profits is charged with additional tax at the rate of 15 %. The liability of payment of tax is on
the principle officer of the company.

182. Dividend
(1) Except in the following circumstance, dividend shall be distributed to the
shareholders within forty-five days of the decision made to provide
dividend:

(a) If any law prohibits the distribution of dividend;

(b) If the right to receive dividend is subject to any dispute;

(c) If, in a circumstance beyond control of the company or for any reason,
dividend cannot be distributed within the said time-limit.

(2) A company fully or partly owned by the Government of Nepal may

distribute dividend only after obtain in prior approval of the Government of
 Nepal; and the Government of Nepal may give necessary directive on the
matter of dividend to be distributed by such company.

(3) In the event of failure to distribute a dividend within the tine limit as
referred to in Sub-section (1), the dividend shall be distributed together with
the interest thereon at such rate as may be prescribed.

(4) The person whose name is maintained in the shareholder register at the
time of declaration of a dividend or his legal heir shall be entitled to such
dividend.

(5) A company shall not pay or distribute a dividend in any other manner
except out of the amount of profits set aside for the distribution of dividend.

(6) Before paying or declaring a dividend out of the profits for any financial
year, a company shall have fully deducted the pre operation expenses, the
amount required to be depreciated in accordance with the accounting
standards fixed by the competent authority under the prevailing law, any
amount required to be paid or set aside out of the profits under the
prevailing law or the amount or accumulated loss in previous financial years.

Provided, however, that if the prevailing law requires the establishment of a

reserve or consolidated fund of any amount prior to distributing dividend,
any company which is required to comply with such legal requirement shall
not distribute divided without establishing such reserve or consolidated
fund.

(7) Subject to the various provisions contained in this Section, the board of
directors of any company may, in the following circumstance, distribute
interim dividend out of the profits for the previous financial year:

(a) where the articles of association contain a provision on the distribution of

interim dividend;

(b) where the annual financial statement for the financial year out of the
profits of which year interim dividend is to be distributed has already been
certified by the auditor and approved by the board of directors.
(8) No company shall pay or distribute any amount in cash or kind, chargeable
on its funds, to its shareholders, except a dividend approved by the general
meeting.

(9) The amount of dividend not claimed/received by any shareholder even

after the empery of a period of five years after the date of resolution
adopted by the company in its general meeting to distribute dividend shall
be credited to the investor protection fund to be established under Section
183.

(10) In crediting the amount as referred to company shall, prior to the expiry
of the period mentioned in that Sub-section, publish a notice in a national
daily newspaper inviting the concerned to receive the dividend, within the
tie limit of at least on month.

(11) A company shall credit the amount of a dividend to be distributed to its

shareholders pursuant to this Act to a separate account within forty-five
days after the date of approval by the general meeting and pay the amount
of dividend out of that a account; and the company shall not use such
amount for any other purpose.

183. Investor protection fund:

(1) Where any investor does not present a claim to have refunded the amount
invested in the shares of a company even within five years, there shall be
established an investor protection fund to which such amount shall be
credited.

(2) The amount credited to the fund established pursuant to Subsection (1)
may be spent for the improvement in the capital market, investment policy,
companies law or law relating to trade, business and profession, training to
the employees of the Office or the company or in any other activity relating
to the company administration.

(3) The management an operation of the fund established pursuant to Sub-

section (1) shall be as decided by a committee consisting of the Registrar,
the Chairperson of the Securities Board or his/her representative and one
 representative appointed by the Securities Board from amongst the
organization operating the stock exchange.

(4) The Office shall maintain the records of expenses made out of the fund
established pursuant to Sub-section (1) and have the fund audited.

(5) Any amount obtained from the Government of Nepal, any donor agency or
any person or body may also be credited to the fund established pursuant to
Sub-section (1).

(6) Where any investor does not present a claim pursuant to Subsection (1),
prior to crediting the amount to the investor protection fund, a notice shall
be published in a national daily newspaper inviting the concerned to receive
such amount, within the time limit of at least one month.

6.4 Repatriation of Dividend under Foreign

Investment and Technology Transfer Related
Laws ( Foreign Investment &Techonology
Trasfer Act, 2075 Taxation Act, 2058)

Meaning
 The return of someone to their own country.
 The sending of money back to one's own
country.
 "the repatriation of profits by foreign investors"
 to send or bring money or profits back
to own country:
  Repatriation of foreign investment refers
to the ability of the foreign investor to
remove its investments and profits made
from the host country.
 Repatriation of foreign investments
therefore refers to the ability of the
foreign investor to return those profits
to the home jurisdiction of the foreign
investor or to invest them in another
jurisdiction.
Repatriation by Foreign Investor
Procedure for repatriation of Investment/Return;
• Apply to Department of Industry (DOI) for
approval of repatriation
• Get Approval letter from DOI
• Apply to Nepal Rastra Bank (NRB) for
Repatriation
• After getting approval from NRB,

Repatriation of Dividend
 Any foreign investor wishing to repatriate
his/her dividend from his/her investment as per
the FITTA 2019 has to obtain approval from the
DOI. The foreign investor or the company has to
apply to the DOI with the following documents: -
- Application in the prescribed format
- Copy of the Board of Directors’ resolution
- Updated Share Register from the Office of
Company Registrar
- Updated Directors Register from the Office of
Company Registrar
- Audited Financial Statements
- Tax Clearance Certificate
- Endorsement letter from NRB as a proof of
Foreign investment made and recorded in NRB
- Decision of the BOD and AGM for the dividend
and Bonus allocation /approval
- Proof of distribution of bonus to employees as
required by the Bonus Act
- Proof of payment of required tax in the
concerned tax office
- Credit Information Bauru (CIB) Report whether
blacklisted or not
Approval of Repatriation from NRB
After the approval from DOI for repatriation, then
the foreign investor can make application to NRB for
the repatriation. Along with the approval letter from
DOI, all the documents submitted to DOI for the
approval shall also be submitted to NRB for final
approval of repatriation.

Approximate time
Apply to DOI for Approval of Repatriation (Expected
duration- 1 month)
Apply to NRB for Repatriation (Expected duration – 1
month)
Repatriate after approval from NRB (Expected duration
– 7 working days)
Foreign investment and Technology
Transfer Act, 2075
20. Repatriation of investment and earnings:
1) A foreign investor may, if it so wishes,
(

repatriate its investment from Nepal by selling

wholly or partly of the shares or industry having
its investment in accordance with the prevailing
Nepal law, after paying all such taxes as may be
liable in accordance with the prevailing Nepal
law.
(2) A foreign investor may repatriate the
following amount in the same foreign currency
in which the investment has been made or other
convertible foreign currency with the approval
of the Nepal Rastra Bank, after paying the tax
related liabilities under the prevailing law:
(a) Amount received from the sale of shares with
foreign investment,
(b) Amount of profit or dividend received from
foreign investment,
(c) In the case of liquidation or winding up of the
industry or company, amount remaining after
paying all liabilities following the liquidation or
winding up,
(d) Amount of royalty received under the
technology transfer agreement, Provided,
however, that in the case of the royalty or fee
for the use of a trademark under the transfer of
technology in a liquor industry other that a
liquor industry exporting cent percent of liquor,
the amount of such royalty shall not exceed five
percent of the total selling price, as prescribed,
excluding the prevailing tax.
(e) Amount of lease rent under the lease
investment,
(f) Amount received as damages or
compensation, if any, received from the final
settlement of a law suit, arbitration or any other
legal process in Nepal,
(g) Amount that can be repatriated in accordance
with the prevailing law.
(3) In repatriating amount in a convertible foreign
currency in accordance with sub-section (1) or
(2), it shall be repatriated by making conversion
at the prevailing exchange rate.
(4) Where any foreign investor has lent a loan to
any industry or company against the pledge or
mortgage of a movable or immovable property
situated in Nepal and the movable or
immovable property pledged or mortgaged
required to be auctioned or forfeited because of
nonpayment of the principal or interest of such
a loan, the institution lending such a loan may
repatriate the principal and interest of the loan
by auction of such property as if it were a bank
or financial institution of Nepal.
(5) In the case of termination of a lease
agreement because of nonpayment in
accordance with the lease agreement or breach
of its terms, the foreign investor may repatriate
its investment and the property invested in the
lease.
(6) A foreign investor who wishes to repatriate
the foreign investment or amount earned
therefrom in accordance with this Section shall
make an application, in the form as prescribed,
to the foreign investment approving body for
approval to that effect. Provided, that such an
application shall be made to the Single Stop
Service Centre, if the Government of Nepal, by a
notification in the Nepal Gazette grants to the
Single Stop Service Centre, the power to the
body to give approval relating to repatriation of
foreign investment or amount earned
therefrom.
(7) If, in examining an application received
pursuant to sub-section (6), it appears that the
foreign investor has fulfilled the terms and
liabilities referred to in this Act, prevailing law
and the agreement made in relation to foreign
investment, the foreign investment approving
body shall give approval to repatriate the
foreign investment or amount earned therefrom
 not later than fifteen days of the date of receipt of
the application.
(8) After obtaining the approval pursuant to sub-
section (7), the foreign investor may make an
application to the Nepal Rastra Bank for the foreign
currency exchange facility.
(9) The Nepal Rastra Bank shall, upon receipt of an
application in accordance with sub-section (8),
provide the exchange facility to the foreign investor
for the repatriation of foreign investment.
(10) Where the amount of investment is to repatriated
by selling wholly or partly any industry with foreign
investment or upon revocation of the registration of
the industry or company for any reason, repatriation
of the remaining amount may be made only after the
payment or settlement of all liabilities including the
tax payable by such an industry.
(11) Notwithstanding anything contained elsewhere in
this Section, a foreign investor may, in repatriating
foreign investment made in any industry in
accordance with this Act or profit earned therefrom,
repatriate such investment or profit only to the
extent of the ratio of the portion of its investment in
the concerned company.
 (12) If any foreign investor is not satisfied with a
decision made by the body giving such approval in
the course of repatriation of the amount of its
investment, the investor may make an application to
the Ministry. The Ministry shall make a decision on
such an application within thirty working days.

Unit 7. Modern Types of Companies

7.1 Single Shareholders Companies
7.2 Foreign Companies
7.3 Non-Profit Distributing Companies
7.4 Companies Limited by Guarantees
7.5 Properties Management Companies
7.6 Multinational Companies
7.7 Offshore Companies

General background
(1) On the basis liability
  Companies Limited by shares
 Companies Limited by guarantee
 Unlimited companies
(2) On the basis of Jurisdiction
 Domestic (Parent) companies
 Foreign companies
 Multinational companies
(3) On the basis of number of shareholders
 Single-shareholder companies
 Private companies
 Public companies
(4) On the basis of Incorporation authority
(Legislation)
 Charter companies
 Statutory companies
 Registered companies
(5) On the basis of profit distribution
 Profit distributing companies
 Non-profit distributing companies
(6) Miscellaneous
 Government companies
 Holding companies
 Subsidiary companies
 Listed companies
 Unlisted companies

7.1 Single Shareholders Companies (purpose,

incorporation, operation?)
152. Single shareholder company not required to
call meeting of the board of director and general
meeting
Notwithstanding anything contained elsewhere in
this Act, except as otherwise provided in the articles
of association of a single shareholder company, all
acts and decisions required to be done and made by
the board of directors or general meeting of the
company shall be as decided in writing by such
shareholder; and no meeting of the board of
directors or general meeting shall be required to be
called.
153. Transfer and transmission of shares of single
shareholder company
(1) In the event of death of the shareholder of a
single shareholder company, his/her heir or the
person acquiring the title to his shares shall acquire
the right of shareholder, and such heir or person
shall do all such acts inclusive of the transfer and
transmissions of shares as the single shareholder
can do under this Act. While making a decision to
transfer and transmit shares, the person so
acquiring the title shall make such decision in
writing. Provided, however, that if no heir to such
shareholder is found, the Office shall appoint a
liquidator and liquidate the company in accordance
with the prevailing law.
(2) A person acquiring the title to shares pursuant
to Sub-section (1) shall give information thereof,
accompanied by the evidence of such title, to the
Office no later than one month after the acquisition
of such title.
(3) On receipt of the information as referred to in
Sub-section (1), the Office shall record the
information by collecting the prescribed fees 153
and give information thereof to the person who
acquires the title to shares.
(4) Where the number of person acquiring the title
to shares pursuant to Sub-section (1) is more than
one, they shall be considered to be the directors of
company for the time being, except where the
other heirs transfer the title to only one heir, and
the memorandum of association and articles of
association of the company shall be amended on
that basis.
Provided, however, that where there arises a
question of entitlement, such matter shall be
governed by a judgment of the competent court.

7.2 Foreign companies

154 Registration of foreign company
(1) No foreign company shall carry on any business or transaction in the Nepal without having a branch
office of such company registered with the office of such company registered with the office
pursuant to this Section or establishes such office without having a liaison office registered.
Provided, however, that making investment in shares in any company established pursuant to law,
lending moneys to such company or participating in the operation or management of such
 company, with the approval of the competent body, shall not be deemed to be the carrying on of a
business or transaction for the purposes of this Chapter.
Explanation: Where any foreign company carries on any transaction for a period of one month or
more through an office established in Nepal or used therefor or appoints any person for regular
contact or avails its 154 service, such company shall be deemed to have done a transaction or
established an office in Nepal for the purpose of this Chapter.

(2) A foreign company desiring to have its branch office registered pursuant to Sub-section (1) shall
make to the Office an application, accompanied by the permission obtained from the concerned
body pursuant to the prevailing law, and the prescribed fees and in such format as prescribed, for
the registration of such company.
(3) (3) A foreign company desiring to have its liaison office registered pursuant to Sub-section (1) shall
make to the Office an application, accompanied by the permission, if any, required to be obtained
from the concerned body pursuant to the prevailing law for the registration of such office, and the
prescribed fees and in such format as prescribed, for the registration of such company. Explanation:
where any foreign company is selected by any competent body pursuant to the prevailing law or
enters into contract with any competent body, for any business in Nepal, the making of such
selection entering into such contract shall, for the purposes of Subsections (1) and (2), be deemed
to be the permission given by the concerned body.
(4) (4) On receipt of an application made for the registration of a foreign company pursuant to Sub-
section (2) or (3), the Office shall make necessary inquiry, register such company and give the
registration certificate, as prescribed, no later than thirty days after the making of the application
for carrying on a business or transaction in or establishing a liaison office in the Nepal.
(5) Where a foreign company cannot be registered pursuant to an application made under Sub-
section (2) or (3), the Office shall give 155 information thereof, setting out the reasons for the same,
to the concerned applicant within thirty days.
(6) (6) A foreign company registered pursuant to Sub-section (4) may open its branch office and carry
on the concerned business or transaction in or open its liaison office in the Nepal. Provided,
however, that a foreign company registered as a liaison office shall not be entitled to do any income
earning activity in Nepal.
(7) Where the name of a foreign company making application pursuant to Sub-section (2) or (3) or the
objective to be implemented by such company is of such a nature that it cannot be registered
pursuant to this Act, such foreign company shall not be registered in Nepal.
(8) (8) A foreign company registered pursuant to Sub-section (4) shall be deemed to have been
registered to carry on only the same type of business or transaction as is being carried on by it in
the country where its registered office is situated or it has been incorporated.
(9) (9) A foreign company registered pursuant to this Section shall put its name board in the place of its
business in a manner conspicuous to all, and the name of country where the company has been
established and the registration number of the company registered in Nepal shall be clearly
mentioned in such board and bills, receipts, invoices, etc. or letter head to be used by the company.
(10) The office shall maintain a separate register for the registration of foreign companies registered
pursuant to this Section and make arrangements for the inspection of such register by the general
public and for getting a copy thereof by paying the prescribed fees.
(11) Notwithstanding anything contained elsewhere in this Act, a foreign company registered pursuant
to this Section shall not issue shares or debentures within the Nepal.

(12) Notwithstanding anything contained elsewhere in this Act, a foreign company which is carrying on
a business or transaction or which has established its liaison office in the Nepal without having been
registered at the time of commencement of this Act shall get it registered with the Office pursuant to
this Act no later than six months after the date of commencement of this Act.

155. Submission of documents by foreign companies:

(1) A foreign company which makes an application for its registration or for the establishment of its
liaison office pursuant to Section 154 shall submit to the Office the following details, along with the
application:

(a) Permission obtained by the foreign company from the competent authority to carry on its business
or transaction in Nepal;

(b) Copies of the charter, certificate of incorporation, memorandum of association, articles of

association of the company, and Nepalese translation thereof;

(c) Full name, address of the registered office and principal place of business of the company, date of
incorporation of the company, description of the paid up capital and major objectives of such company;

(d) Names, addresses of directors, manage, company secretaries or main officers of the company and
description of their citizenship;

(e) Name and address of the person residing or staying in the Nepal, who is authorized by the company
to receive, on its behalf, any summons, notice etc. issued in the name of the company;

(f) Full address of the principal place where the company carries on its transaction or business in Nepal
and of the office of the company situated in that place;

(g) Where the company is to carry on any transaction or business in the State of Nepal, details of the
proposed investment and transaction;

(h) Where the company is to commence its transaction in Nepal, the proposed date thereof;

(i) A declaration made by a director of the company or his/her representative, on behalf of the
company, that the matters contained in the returns submitted by the company are true and correct;

(j) Power of attorney as referred to in Section 157.

(2) Where any amendment or alteration is made to or in the contents of any document submitted by
any foreign company pursuant to Sub-section (1), a notice, accompanied by the details of such
amendment or alteration, shall be given to the Office no later than thirty-five days.

(3) While submitting any such documents issued outside Nepal or copies thereof as required to be
submitted pursuant to Sub-section (1), they have to be certified pursuant to the law of the country of
registration of the foreign company.

156. Books of account, audit and annual report of foreign company:

 (1) Every foreign company registered pursuant to Section 154 shall prepare an annual financial
statement, along with the balance sheet and profit and loss account, in such a manner as to reflect the
real situation of its transaction in Nepal, get it audited and submit the same to the Office no later than
six months after the expiration of a financial year as if such company were a company incorporated
under this Act.

(2) Every foreign company shall submit to the Office a copy of the annual financial statement, audit
report and report of board of directors prepared for every financial year pursuant to the law of the
country where its registered office is situated no later than three months after such statement and
reports have been finally prepared.

(3) The annual financial statement to be prepared by a foreign company pursuant to Sub-section(1) shall
include the following details:

(a) Statements prepared in a manner to show classifying the particulars of the fixed, running and other
properties held in the name of the foreign company within Nepal;

(b) clear details of cash held in the name of the foreign company with a bank and financial institution
situated in Nepal;

(c) Total amount of loans and liabilities, if any, due and payable by the foreign company to any person
who 159 is a resident of Nepal or a Nepalese company registered under this Act.

(4) Where any report and statement required to be submitted to the Office pursuant to Sub-section (2),
and any document required to be attached therewith, are in a language other than the Nepali or English
language, a copy of authentic translation of such document into the Nepali or English language shall also
be attached therewith.

(5) A foreign company which has got its liaison office registered in Nepal pursuant to Section 154 shall
get certified by an auditor the statements of salary, allowance and amounts paid to the employees,
consultants or liaison persons serving in such office, statements of deduction of tax from such payment
pursuant to the prevailing law, payment of rental and expenses for the operation of such office and
statements of deduction of tax from such payment pursuant to the prevailing law, and submit the same
to the Office no later than three months after the expiration of a financial year.

157. Power of attorney:

(1) A foreign company to be registered pursuant to Section 154 shall submit office copy of a power of
attorney executed in the specified format in accordance with the legal requirements of the country
where the company has been incorporated or its registered office is situated, hereby appointing a
person residing in Nepal as its authorized representative for the purposes of the service of any summons
or notice or authorizing such person to receive any other lawful notices on a lawsuit or legal action
instituted on behalf or legal against the company.

(2) A power of attorney executed pursuant to Sub-section (1) shall state, inter alias that where any
summons or notice on a lawsuit instituted on behalf of or against the company or other legal notice is
160 delivered to the authorized representative, it shall be binding on the company for any purpose
whatsoever.
158. Cancellation of registration and liquidation of a foreign company

(1) Where a foreign company registered pursuant to Section 54 wishes to close down the transaction
which it is carrying on in Nepal and get its registration canceled or where the competent authority,
acting in accordance with the prevailing law, prohibits such company from carrying on the transaction or
business within Nepal, such company shall make an application, accompanied by the prescribed fees, o
the Office for the cancellation of its registration.

(2) A foreign company which makes an application pursuant to Sub-section (1) shall also submit, along
with the application, an evidence and proof confirming that there is no liability due and payable by such
company too any person, organization or governmental or non-governmental body in Nepal.

(3) In order to inquire whether the evidence and proof as referred to in Sub-section (2) are true or not,
the Office shall publish at least twice in a national daily newspaper a notice inviting a claim,
accompanied by evidence, on any liability, if any due and payable by the company to any one, within a
period of twenty-one days.

(4) Where any person makes a claim in pursuance of the notice published pursuant to Sub-section (3),
the concerned company shall submit to the Office evidence or proof showing the settlement of such
claim. Where the claim made against such company pursuant to Subsection (1) cannot be settled from
the assets of such company situated in Nepal, such company shall settle the same from its assets
situated outside Nepal.

(5) Where no claim is made by anyone within the time limit as referred to in Sub-section (3) or a proof is
submitted showing than the claim made has been settled pursuant to Sub-section (4), the Office shall
strike the name of such company off the foreign company register and give information thereof to the
concerned company.

(6) Where an insolvency process is initiated in respect of a foreign company, which has been registered
in Nepal pursuant to this Chapter, in accordance with the law of any country out of the countries where
such company has been carrying on its transaction, the representative authorized by such foreign
company pursuant to Section 157 shall promptly give a notice in writing thereof to the Office, and
he/she shall also publish such notice in a national daily newspaper to be published from Nepal for the
information of the general public. Provided, however, that where an order for the cancellation of
registration of such company has already been issued, such foreign company shall close its transaction
or business in Nepal.

(7) Where any foreign company closes its transaction or business pursuant to the proviso to Sub-section
(6), the prevailing law on insolvency shall govern the transaction or business carried on by such company
in the State of Nepal.
3.3.1 Share and Stock
 “Securities” means any shares, bonds, debentures
or stocks issued by a company, and this term
includes the receipt relating to deposit of securities
and the right and entitlement relating to securities.
(Company Act, section, 2(x) )
 The terms “stocks” and “shares” are often used in
an interchangeable way – a bit like ping pong and
table tennis – and yet, they don’t exactly mean the
same thing. A stock (also known as equity) is a
security that represents the ownership of a fraction
of a company. This entitles the owner of
the stock to a proportion of the company's assets
and profits equal to how much stock they own.
Units of stock are called ‘share.’
 ‘Stock’ is, a bundle of fully paid shares put together
for convenience so that it may be divided into any
amount and transferred into any fractions.
 The term stocks should be used when discussing
ownership of companies in general, whilst the term
shares is used to describe ownership of a specific
company.
  Nepal Stock Exchange Limited (NEPSE) is the
he
only Stock Exchange of Nepal.
 The basic objective of NEPSE is to impart free
marketability and liquidity to the government and
corporate securities by facilitating transactions in
its trading floor through member, market
intermediaries, such as broker, market makers etc.

S.N Shares S.N Stocks

1. Shares may be fully 1. Stocks are always fully
paid up or partly paid paid up .
up.
2. Shares may be issued 2. Stocks cannot be
when a company is issued at
incorporated. (can be incorporation. Only
issued in original) fully paid shares can
be converted into
stocks.( cannot be
issued in original)
3. Shares cannot be 3. Stocks can be issued or
divided below the face transferred in
value of each share. fractional parts.
4. Shares are serially 4. Stocks are not
numbered. numbered.
5. Shares are of equal 5. Stocks may be divided
denomination. into unequal amounts.
6. Shares are always 6. Stocks may be
registered and are not registered or
transferable by mere unregistered.
delivery. Unregistered stock can
be transferred by mere
 delivery.

An equity investment indicates ownership. It typically purchases

an equity investment because is expected the value of the
investment to increase, because it is expected to obtain some
other benefit from the investment, or a combination of the two.
The house probably bought with the expectation that it would
increase in value, but it also expects to benefit from living in the
home.

In financial markets, a share is a unit used as mutual funds,

limited partnerships, and real estate investment trusts. The owner
of shares in the corporation/company is a shareholder (or
stockholder) of the corporation. A share is an indivisible unit of
capital, expressing the ownership relationship between the
company and the shareholder. The denominated value of a share
is its face value, and the total of the face value of issued shares
represent the capital of a company, which may not reflect the
market value of those shares. The income received from the
ownership of shares is a dividend.
Equity and stock often mean the same thing. They represent the
ownership of a property, business or a financial instrument. In the
case of equity, you get the total ownership of the instrument,
while, for stocks, ownership can be total or in partnership with
other stockholders. In stock markets, along with stocks, the
buying and selling of mutual funds and other instruments like
bonds and derivative contracts also take place.
When there are multiple partners for a single property or a
company, then that property is divided into shares depending on
the percentage of investment done by each partner. These shares
represent the ownership of a partner in a company. When the
board of directors of the company declares the dividend, each
share gets to have the same amount.

The relationship between the 3 is that the shares of stock are

called equity investments. The shares make money from the
profits on the capital investment and the pre-decided dividends. A
share market allows investors to invest in growing businesses by
gaining the part of the ownership of a company and bearing the
risks attached to the profit and loss of the business.
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Stocks and equity are same, as both represent the ownership in an
entity (company) and are traded on the stock exchanges. Equity
by definition means ownership of assets after the debt is paid off.
Stock generally refers to traded equity.

Stock is the type of equity that represents equity investment.

When you buy a stock, you expect returns in the form of dividend.
Equity can also mean stocks or shares.