The Chapter IV of the Companies Act, 2013 deals with Share Capital and Debentures, one of the most crucial areas in corporate law. This chapter defines the rules and procedures related to the issue, alteration, redemption, transfer, and regulation of share capital and debentures of a company. It ensures transparency and protects the interests of shareholders and creditors by prescribing the rights, restrictions, and responsibilities associated with ownership and capital structure.
Aspirants preparing for UGC NET Commerce, CA, CS, CMA, SEBI Grade A, or other competitive exams often find this chapter extremely important, as it forms the base for understanding company financing and shareholder rights.
In this blog, we have provided comprehensive notes on each section from Section 43 to Section 72, along with a PDF download link for the Companies Act, 2013.
Topics Covered Under Companies Act 2013 Chapter 4
The topics covered under Chapter 4 of the Companies Act, 2013 are as follows:
- Kinds of Share Capital (Section 43)
- Nature of Shares or Debentures (Section 44)
- Numbering of Shares (Section 45)
- Certificate of Shares (Section 46)
- Voting Rights (Section 47)
- Variation of Shareholders’ Rights (Section 48)
- Calls on Shares of Same Class to be Made on Uniform Basis (Section 49)
- Company to Accept Unpaid Share Capital (Section 50)
- Payment of Dividend in Proportion to Amount Paid-Up (Section 51)
- Application of Premiums Received on Issue of Shares (Section 52)
- Prohibition on Issue of Shares at Discount (Section 53)
- Issue of Sweat Equity Shares (Section 54)
- Issue and Redemption of Preference Shares (Section 55)
- Transfer and Transmission of Securities (Section 56)
- Punishment for Personation of Shareholder (Section 57)
- Refusal of Registration and Appeal Against Refusal (Section 58)
- Rectification of Register of Members (Section 59)
- Publication of Authorised, Subscribed and Paid-up Capital (Section 60)
- Power of Limited Company to Alter its Share Capital (Section 61)
- Further Issue of Share Capital (Section 62)
- Issue of Bonus Shares (Section 63)
- Notice to be Given to Registrar for Alteration of Share Capital (Section 64)
- Unlimited Company to Provide for Reserve Share Capital (Section 65)
- Reduction of Share Capital (Section 66)
- Restrictions on Purchase or Loans for Purchase of its Own Shares (Section 67)
- Power of Company to Purchase its Own Securities (Buy-back) (Section 68)
- Transfer of Certain Sums to Capital Redemption Reserve Account (Section 69)
- Prohibition for Buy-back in Certain Circumstances (Section 70)
- Debentures (Section 71)
- Power to Nominate (Section 72)
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Section Wise Detailed Notes on Companies Act, 2013 Chapter 4
The section-wise detailed notes on Chapter 4 of the Companies Act, 2013 are as follows:
Section 43 – Kinds of Share Capital
The share capital of a company is divided into two main types:
- Equity Share Capital – with or without voting rights.
- Preference Share Capital – carrying preferential rights regarding dividends or repayment during winding up.
Section 44 – Nature of Shares or Debentures
Shares or debentures are movable property and transferable as per the company’s Articles of Association.
Section 45 – Numbering of Shares
Each share must have a distinctive number, except when held in dematerialised form.
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Section 46 – Certificate of Shares
A share certificate issued under the company’s seal serves as prima facie evidence of ownership. Duplicate certificates can be issued under prescribed conditions.
Section 47 – Voting Rights
- Equity shareholders enjoy voting rights in proportion to their paid-up share capital.
- Preference shareholders have restricted voting rights and can vote only on matters directly affecting their rights or when dividends remain unpaid for a specified period.
Section 48 – Variation of Shareholders’ Rights
Rights attached to a class of shares can be varied only with:
- Consent of at least three-fourths of that class of shareholders, or
- Approval by a special resolution.
Section 49 – Calls on Shares to be Made on Uniform Basis
When a company calls unpaid capital, it must be uniform for all shares of the same class.
Section 50 – Acceptance of Unpaid Share Capital
A company may accept from any member the amount remaining unpaid on shares, even if not yet called.
Section 51 – Payment of Dividend in Proportion to Amount Paid-Up
Dividend is payable only in proportion to the amount actually paid on each share.
Section 52 – Application of Premiums Received on Issue of Shares
Premium received on issue of shares must be credited to the Securities Premium Account and can be used for specific purposes such as:
- Issue of bonus shares
- Writing off preliminary expenses
- Redemption of preference shares or debentures
Section 53 – Prohibition on Issue of Shares at Discount
Companies cannot issue shares at a discount, except in the case of sweat equity shares.
Section 54 – Issue of Sweat Equity Shares
Sweat equity shares can be issued to employees or directors for their contribution of know-how or intellectual property, with approval through a special resolution.
Section 55 – Issue and Redemption of Preference Shares
- Preference shares must be redeemable within a maximum of 20 years.
- Redemption must be out of profits or fresh issue of shares.
- Fully paid-up status is mandatory.
Section 56 – Transfer and Transmission of Securities
Regulates the procedure for transfer and transmission of shares and debentures, requiring proper instrument and registration.
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Section 57 – Punishment for Personation of Shareholder
Fraudulent personation (pretending to be another shareholder) attracts severe penalties under Section 447.
Section 58 & 59 – Refusal, Appeal, and Rectification
- If registration of transfer is refused, an appeal can be made to the Tribunal.
- The Tribunal can order rectification of the register in case of fraud or error.
Section 60 – Publication of Authorised, Subscribed, and Paid-up Capital
Any misrepresentation of capital details in company documents is punishable under this section.
Section 61 – Power to Alter Share Capital
Companies can alter their share capital by:
- Increasing authorised capital,
- Consolidating or dividing shares,
- Sub-dividing shares, or
- Cancelling unissued shares.
Section 62 – Further Issue of Share Capital
Covers rights issue, ESOPs, and private placement of shares. Rights issue must be offered to existing shareholders in proportion to their holdings.
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Section 63 – Issue of Bonus Shares
Bonus shares can be issued out of free reserves, securities premium, or capital redemption reserve, but not out of revaluation reserves.
Section 64 – Notice to Registrar
Any alteration in share capital must be filed with the Registrar within 30 days.
Section 65 – Reserve Share Capital in Unlimited Companies
Unlimited companies converting into limited ones may reserve a portion of uncalled capital, to be used only during winding up.
Section 66 – Reduction of Share Capital
A company can reduce its share capital by a special resolution and Tribunal approval, ensuring no prejudice to creditors.
Section 67 – Restriction on Purchase or Loans for Purchase of Own Shares
Companies cannot buy their own shares unless through legal buy-back, nor can they provide loans for others to buy their shares.
Section 68 – Power of Company to Buy Back its Own Shares
Buy-back can be done:
- From free reserves, securities premium, or proceeds of a fresh issue.
- Up to 25% of paid-up capital and free reserves.
- Fully paid-up shares only.
- Must complete within one year of authorisation.
Section 69 – Transfer to Capital Redemption Reserve Account
When buy-back is made out of free reserves, an equivalent amount must be transferred to the Capital Redemption Reserve Account.
Section 70 – Prohibition for Buy-back in Certain Cases
Buy-back is prohibited if the company has defaulted in repayment of deposits, loans, debentures, or statutory dues.
Section 71 – Debentures
- Companies may issue secured or convertible debentures.
- Must create a Debenture Redemption Reserve (DRR).
- Must appoint Debenture Trustees for public issues.
- Debentures cannot carry voting rights.
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Section 72 – Power to Nominate
A shareholder can nominate a person to inherit securities upon death. In joint holdings, nomination is effective only after the death of all joint holders.
Download Companies Act 2013 Chapter 4 Free PDF
Aspirants preparing for the UGC NET Commerce paper, SEBI Grade A exam, and various other government exams can download the complete details of the Companies Act, 2013 through the direct link provided below. Specifically, to check Chapter 4 of the Companies Act, 2013, refer to pages 46 to 61 of the PDF.
Questions Based on Companies Act 2013 Chapter 4
Q1. Under which section of the Companies Act, 2013 are the kinds of share capital defined?
A) Section 42
B) Section 43
C) Section 44
D) Section 46
E) Section 48
Correct Answer: B) Section 43
Explanation: Section 43 classifies share capital into two kinds — equity share capital (with or without voting rights) and preference share capital (with preferential rights).
Q2. Preference shares must be redeemed within a maximum period of ______ years from the date of issue.
A) 5 years
B) 10 years
C) 15 years
D) 20 years
E) 25 years
Correct Answer: D) 20 years
Explanation: As per Section 55, a company cannot issue irredeemable preference shares, and redemption must occur within 20 years, except in special infrastructure cases.
Q3. Which section of the Companies Act prohibits the issue of shares at a discount (except sweat equity shares)?
A) Section 52
B) Section 53
C) Section 54
D) Section 55
E) Section 50
Correct Answer: B) Section 53
Explanation: Section 53 clearly prohibits companies from issuing shares at a discount to their nominal value, except for sweat equity shares under Section 54.
Q4. Sweat equity shares can be issued to:
A) Promoters only
B) Directors and employees
C) Shareholders only
D) Auditors
E) Debenture holders
Correct Answer: B) Directors and employees
Explanation: Section 54 allows a company to issue sweat equity shares to employees or directors in recognition of their know-how, value addition, or intellectual property.
Q5. Which section deals with the issue of bonus shares?
A) Section 63
B) Section 62
C) Section 68
D) Section 70
E) Section 66
Correct Answer: A) Section 63
Explanation: Section 63 permits companies to issue fully paid bonus shares from free reserves, securities premium, or capital redemption reserve.
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Q6. Which of the following is NOT a valid use of the Securities Premium Account?
A) Issue of fully paid bonus shares
B) Writing off preliminary expenses
C) Payment of dividend
D) Writing off expenses on issue of debentures
E) Redemption of preference shares
Correct Answer: C) Payment of dividend
Explanation: Under Section 52(2), securities premium cannot be used to pay dividends; it can only be used for specific purposes like bonus issue or redemption.
Q7. Buy-back of shares can be done up to what percentage of paid-up equity capital and free reserves?
A) 10%
B) 15%
C) 20%
D) 25%
E) 30%
Correct Answer: D) 25%
Explanation: As per Section 68, buy-back cannot exceed 25% of the company’s paid-up capital and free reserves.
Q8. The uncalled capital reserved for use only in winding up is known as:
A) Issued capital
B) Authorised capital
C) Reserve share capital
D) Paid-up capital
E) Called-up capital
Correct Answer: C) Reserve share capital
Explanation: Section 65 states that unlimited companies converting into limited ones may reserve uncalled capital as reserve share capital.
Q9. Which of the following statements about equity shares is TRUE?
A) They carry fixed dividend
B) They have preferential rights
C) They carry voting rights
D) They are redeemable at par
E) They are secured
Correct Answer: C) They carry voting rights
Explanation: Equity shareholders have voting rights in proportion to their paid-up capital, as per Section 47.
Q10. Dividend is payable in proportion to the ______ amount of shares.
A) Nominal
B) Face value
C) Paid-up
D) Market
E) Authorised
Correct Answer: C) Paid-up
Explanation: Under Section 51, dividends are payable in proportion to the amount actually paid-up on shares.
Q11. Misrepresentation of a company’s authorised, subscribed, or paid-up capital is dealt with under:
A) Section 60
B) Section 61
C) Section 62
D) Section 64
E) Section 58
Correct Answer: A) Section 60
Explanation: Section 60 prohibits any false statement about the company’s capital in documents or advertisements.
Q12. A company must file notice with the Registrar for any alteration of share capital within:
A) 7 days
B) 14 days
C) 21 days
D) 30 days
E) 60 days
Correct Answer: D) 30 days
Explanation: Under Section 64, the company must notify the Registrar within 30 days of any alteration in share capital.
Q13. The Tribunal’s approval is mandatory for which of the following actions?
A) Issue of bonus shares
B) Buy-back of shares
C) Reduction of share capital
D) Rights issue
E) Transfer of shares
Correct Answer: C) Reduction of share capital
Explanation: As per Section 66, reduction of share capital requires approval from the Tribunal to ensure creditor protection.
Q14. A company can issue further shares to its existing shareholders under which method?
A) Private placement
B) ESOP
C) Rights issue
D) Public offer
E) Preferential allotment
Correct Answer: C) Rights issue
Explanation: Section 62(1)(a) provides that further issue of shares must first be offered to existing shareholders in proportion to their holdings — known as a rights issue.
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Q15. Debentures cannot carry:
A) Fixed rate of interest
B) Voting rights
C) Maturity date
D) Conversion rights
E) Trustee appointment
Correct Answer: B) Voting rights
Explanation: According to Section 71(2), debentures do not carry voting rights.
Q16. A company cannot buy back its shares if it has defaulted in repayment of:
A) Dividend
B) Deposits or loans
C) Debenture interest
D) Preference share redemption
E) All of the above
Correct Answer: E) All of the above
Explanation: As per Section 70, buy-back is prohibited if the company has defaulted in repayment of deposits, loans, interest, or redemption obligations.
Q17. Which section deals with variation of shareholders’ rights?
A) Section 47
B) Section 48
C) Section 49
D) Section 50
E) Section 52
Correct Answer: B) Section 48
Explanation: Section 48 governs how the rights attached to a particular class of shares can be varied only with consent of three-fourths of that class.
Q18. Who can make a nomination under Section 72 of the Companies Act?
A) Only directors
B) Only promoters
C) Any shareholder
D) Only preference shareholders
E) Creditors
Correct Answer: C) Any shareholder
Explanation: Section 72 allows any shareholder to nominate a person to whom securities shall vest upon their death.
Q19. What document serves as prima facie evidence of ownership of shares?
A) Share application form
B) Share certificate
C) Share transfer deed
D) Memorandum of association
E) Prospectus
Correct Answer: B) Share certificate
Explanation: Under Section 46, a share certificate issued under the company’s seal is prima facie evidence of title to shares.
Q20. The capital which has been subscribed and fully paid by shareholders is known as:
A) Authorised capital
B) Subscribed capital
C) Issued capital
D) Paid-up capital
E) Reserve capital
Correct Answer: D) Paid-up capital
Explanation: Paid-up capital represents the portion of subscribed capital that has been actually paid by shareholders to the company.
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