Equity shares, with reference to any company limited by shares, are those which are not preference shares. They do not carry any preferential rights. [Sec. 85 (2)]. For the purposes of dividend and repayment of capital, they rank after the preference shares. The rate of dividend in their case is generally not fixed, and therefore, they enjoy all the profits left out after paying a fixed rate of dividend on the preference shares.
As per the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001, a company limited by shares may issue shares with differential rights as to dividend, voting or otherwise subject to the following conditions:
(1) The articles of association of the company authorize the issue of these shares.
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(2) A company is allowed to issue equity shares with differential rights only to the extent of 25% of the total issued share capital.
(3) Approval of the shareholders is obtained by passing of ordinary resolution at the general meeting. A listed public company is required to pass the resolution through postal ballot.
(4) The company has distributable profits in terms of section 205 of the Companies Act, for the 3 financial years preceding the year in which it was decided to issue such shares;
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(5) The company has not defaulted in filing annual accounts and annual returns , for the 3 financial years preceding the year in which it was decided to issue such shares;
(6) The company did not fail to repay its deposits or interest thereon on the due date or redeem its debentures on the due date or pay dividend;
(7) The company has not been convicted of an offence under the SEBI Act, Securities Contracts (Regulation) Act or the FEMA Act; and
(8) The company has not defaulted in meeting investors’ grievances.