CS Prem Pyara Tiwari
Provisions of section 43 and 47 deals with the kinds of shares which may be issued by a Company and the voting rights attached to such shares. In this article we will analyze the present law with reference to the issue of shares without voting rights.
Kinds of Share Capital:
The share capital of a company limited by shares shall be of two kinds, namely:—
(a) Equity share capital:
(b) Preference share capital
As per the provisions of the Companies Act, 2013 these limitations on kinds of share capital applied to all Companies including private Companies also. Therefore even private Companies could not structure their share capital in the form and fashion that they deem fit unless in conformity with the requirement of the said Act.
However, as per the recent amendment in Companies Act, 2013, now private Companies have been exempted from the requirement of provisions of section 43 and 47 of the Companies Act, 2013 subject to the provisions contained in the memorandum and articles of the Company i.e. in a nut shell Private Companies have now been given the freedom to structure their share capital in accordance with their requirement.
Section 47 of the Companies Act deals with the provisions pertaining to the voting rights of the members which states that:
Further, preference shareholders are also given voting rights on the matters directly affecting their rights and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital. Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.
It is pertinent to note here that as per the Companies Amendment Act, 2015, the Private Companies now have been given exemption, subject to the provisions contained in the memorandum and articles of the Company from the above requirement also.
Shares with Differential Rights:
Can a Company Issue Non Voting Share:
It is a debatable question that a Company can issue non-voting share, it may be argued that section 47 offers every member a right to vote and therefore, a company cannot issue non-voting shares.
In a view of above stated provision it may be said that by virtue of the Companies Amendment Act, 2015, a Private Company unless it is a subsidiary of Public Company may issue without voting right shares including the nonvoting preference shares, subject to the provisions of memorandum and articles of the Company. However, a public Companies shall still be subjected to the provisions of section 43 and 47 of the Companies Act, 2013, hence cannot issue nonvoting right shares.
The said amendment would benefit all Private Companies who wish to raise funds by structuring their capital without dilution of control.
(Author is a Company Secretary from Delhi and can be contacted at email@example.com)