SAG RTA's New Appointment Scheme for Agents and Companies

SAG RTA has become the first SEBI-accredited RTA Services provider in India thanks to top-notch infrastructure and a team of enthusiastic professionals. SAG RTA handles the following transactions/functions on behalf of its clients (mutual fund houses & investors) as a reputed Registrar and Transfer Agent:

• Securities Dematerialisation, i.e. conversion of physical security certificates into Demat form.
• Upon receiving a request from a client who has misplaced the original certificate, SAG RTA (Registrar and Share Transfer Agent) issues duplicate share certificates.
• Validates dividend/interest distribution through ECS straight to an investor's bank account in conformity with SEBI standards.
• Revalidates the dividend if it is requested by a shareholder who is not able to encash the dividend warrant.
• Accelerates the reporting of transfer and dematerialization for investors.
• For transferring the share certificate in the tangible form for the investor it utilizes the SH-4 share transfer form.
• For the data handled on the investor's behalf, it regularly furnished the reports with accuracy.
• Furnishes the IEPF claim settlement service that comprises transferring the unpaid/due amount to IEPF.
• Keeps accurate and current records of user and investor information, including personal information and transactions for sales, purchases of shares, etc.
• Holding routine meetings with investors and companies for business and social engagement.
• Accepting investor requests for name changes, name deletions, address changes, updated signatures, transmissions, etc.

SAG RTA continuously offers top-notch Registrar & Transfer Agent Services, along with best-in-class assistance, to investors all throughout the country thanks to its dedicated staff of elite and competent financial specialists.

Note:- According to a general notification issued by the Ministry of Corporate Affairs on September 10, 2018, every unlisted public limited company is required to issue securities solely in demat form. According to SEBI, transfers of securities in Demat form became effective on April 1, 2019. As a result, each such company must select a Registrar & Share Transfer Agent.

Terms & Conditions for Appointing SAG Infotech as RTA

To engage with SAG Infotech as the Registrar and Transfer Agent (RTA) service provider, it is essential to comply with the following terms and conditions: 

• Professional charges (for Chartered Accountants, Company Secretaries, or other professionals) are not included in the RTA fee and will be billed separately.
• Any additional corporate actions or services not explicitly mentioned will incur separate RTA charges.
• Depository charges payable to NSDL/CDSL are not included in the RTA fee and will be invoiced separately.
• Support from SAG Infotech is available exclusively during regular office hours.

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A Simple Process for Dematerializing Shares Using the RTA

 The procedure of conversion of physical share certificates in the electronic or dematerialized form is said to be dematerialization so as to handle them in a precise way. The method of Dematerialization could indeed get compared to transferring your money to a bank account rendering a person to maintain the proper records of his/her financial transactions.

Physical share certificates of shareholders can get substituted from Electronic book entries in the case of the dematerialization of shares, in which debit entries indicate the selling of shares while shares purchase would be shown as the credit entries. 

With the service of a Demat Account handled by a Depository, the shares or debt investment made through the investors could be kept in the electronic or dematerialized form. 

From depository participants (DP) and registrar and share transfer agents like SAG RTA, CAMS, etc the depositories can ask for assistance so as to hold the dematerialized shares of investors. Through  NSDL and CDSL depository in India, SAG RTA beneath the Registrar & Transfer Agent Services furnished the facility of the dematerialization.

Upon the urge of the investors, the depository would be an entity that handles all the securities of the investor in electronic form. Central Depository Services Ltd, and National Securities Depository Limited would be the two depositories in India. 

From the depository participants (DPs) the depositories can ask for help so as to function as the intermediary between the issuer company and the actual DP. Through providing the interference between the depository and the investor the DPs help the investors to buy the shares of the companies. DPs support in handling the Demat accounts of the investors precisely.

For the current procedure, a registrar and share transfer agent support the depository participants (DPs) in the security (e.g. bonds, shares, debentures, etc.) dematerialization procedure.

Read Also:- Demat Account – What it is And How To Open A Demat Account Online

To Finish the process of dematerializing the shares of the companies they are needed to take assistance from the registrar and share transfer agents, for example, SAG RTA. the share dematerialization facility for companies and shareholders would be provided by the SAG RTA. 

A Process For Dematerializing Company Shares

• A company is obligated to make the modification in its articles of association if they want to become a share issuer or provide the facility related to Demat. 
• In a general meeting, the company's owner must pass a separate resolution. This will enable the company to issue the shares to the investors in the dematerialized or electronic form.
• Registration with both the Central depositories that is the National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CDSL) should be completed if the private companies from India desire to apply for the dematerialization of the shares. To get registration the private firms must meet the requirements of both depositories. 
• A company will receive International Securities Identification Number (ISIN) for each of its shares If they fulfill the terms and conditions of the Depository. 
• “ISIN” is a unique identification 12-digit alphanumeric number that is linked with all types of securities, i.e., security, shares, Debentures, Bonds, etc. as well as it is offered via the depository to companies proceeding via the process of dematerialization.
• The firms who want to transfer their dematerialized shares into the shareholder’s  Demat account are needed with the Demat connectivity from the depositories like CDSL and NSDL. A tripartite agreement between the company, the depositories, and the transfer agent is mandatory to take on the Demat connectivity.
• In the identical procedure, SAG RTA which is a Registrar and Transfer Agent provides the services related to the company/issuer agent. Services such as dematerialization, initial public offers, rematerialization, and corporate Actions would get furnished by SAG RTA including that it eases the interaction between the investors and the depository participants. 
• The company that wants its physical shares to get Dematerialized must follow certain steps. In India for companies, the rules are being made via two national depositories like NSDL and CDSL.

Read Also:- What is the Procedure To Convert Physical Shares into The Demat Form?

How Can a Dematerialized Firm Share Be Transferred into a Demat Account?

• With a depository participant (DP), the registered shareholder of the company is initially required to open the Demat account and take the account number. 
• After that, a Demat Request Form (DRF) would be obligated to get filled out by the registered shareholder and submit the same including with that the dematerialization to the depository participants of the physical share certificate is needed to be filled. 
• Registered owners must utilize a separate DRF for each ISIN. a separate Demat request would be required to be filed against both the free shares and lock-in shares if the Beneficiary Owner (BO) holds both free and lock-in shares against the identical ISIN.
• The preciseness of the DRF furnished through the registered shareholders shall get verified subsequently through the Depository participant (DP). 
• On the NSDL and CDSL, DP can raise the request as well as similar information could be intimated to the share issuing firms along with the Registrar and Transfer Agent.
• The issuer/ Registrar and Transfer Agent (RTA) shall validate the genuineness of the deposited share certificates to the DP and then the request would be confirmed. 
• DPv eradicates the submitted physical share certificates and generates a Demat Request Number (DRN), after the successful raising of the Dematerialization Request (DR). The same DR shall get sent to the depository via electronic communication in which the DRF along with the share certificate shall get sent to the issuer company/ R&T Agent. 
• An equal number of securities in the Demat account of the Beneficiary owner (BO) would need to be credited by the depository that has been maintained through the NSDL or CDSL, post obtaining the confirmation.
• In the registered shareholder's Demat account, it shall transfer an equal number of securities which has been held with the CDSL and NSDL, after the depository receives the request.

While transferring the Dematerialized shares below mentioned are the roles of the Registrar and Share Transfer Agent

In the concern of completing the transfer of dematerialized shares the Registrar & Share Transfer Agent performs a vital role since they are counted as those who ask the related firms prior to making any approval to the investor's request for the subject of transferring of shares. 

At the time of the dematerialization process for the ease of investors/shareholders and mutual fund houses, Registrar & Transfer Agent, like SAG RTA, CAMS, and Karvy indeed manage the responsibilities of the documentation. R & T Agent does all the background documentation work to support the fund houses.

Through the particular shareholder, Delivery Instruction Slip (DIS) is needed to transfer his shares into the Demat Account of the other shareholder. It is important to carefully handle the Delivery Instruction Slip (DIS) since it works as an investor checkbook.

For transferring or receiving the shares from his or her Demat Account the shareholders that trade on the traditional stock exchanges must tell their DP and R&T agent. 

Before any other buyers account for making an off-market transaction i.e the transfer of shares, the DP is to get informed by the shareholder to make the same transaction succeed and could assist the registrar and transfer agent for that. 

Via the identical process, any additional security (eg., bonds, debentures, etc) could get transferred to the buyers of other accounts through the shareholders by informing the related DP of that. The Demat account number must be cited precisely in DIS.

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Frequently Asked Questions and Answers About E-Form PAS-6 | SAG RTA

MCA (Ministry of Corporate Affairs) initiated a new step that motivates people to obtain the new compliance post every periodic interval that assists to know the things every year. Despite after 6 years of execution of the new companies act 2013 would seem to be newer. Some of the Form PAS-6 concerning information is. 

Below are the mentioned  Frequently Asked Questions (FAQs) on the deployment of E-Form PAS-6 on MCA. 

Basic (Frequently Asked Questions) For E-form PAS-6

Question 1. What Is the Intention to Start Form PAS-6?

Answer:- The major purpose of Form PAS- 6 would be to perform the reconciliation of the different number of securities given (share certificate or Demat credit) match or do not match via furnishing or paid-up capital. 

It ensures that no extra credit for the securities related to the given number of securities is there and that within the stipulated time the Demat process would execute.

Question 2. What Is the Program for Filing Form PAS-6?

Answer:- Under section 29(1) of the company act 2013 despite anything retain in any additional provisions of this Act, (a) each firm making a public offer, and (b) the same sort of other class or classes of companies as might be defined will provide the securities exclusively in dematerialized form through following the provisions of the Depositories Act, 1996 and the rules made as per that.

Under Section 29(1A) of the Companies Act, 2013, for the case of the same class or classes of unlisted companies as might be defined, the securities held or transferred merely in dematerialized form in the way enacted in the Depositories Act, 1996, and the rules formed as per that.

The same is counted under the companies specified in section 9A of the companies (Prospectus and Allotment of Securities) Rules, 2014, i.e., unlisted public companies. Rule 9A (8) of the Companies (Prospectus and Allotment of Securities) Rules 2014 specified that all the unlisted public companies shall provide the Form PAS-6 via the registrar of the companies by paying fees as cited in companies (Registration Offices and Fees) Rules, 2014 in 60 days from the result of each half-year duly certified via the company secretary in executing or chartered accountant in implementation.

Towards half year end dated 30/09/2019 and 30th March every year, the Form would be required to get filed. 

On the date of 15th, July 2020, Form PAS-6 specified on the website of the MCA would be required to get filed within 60 days from the declared date. 

Read Also:- Information about Form PAS-6 and Frequently Asked Questions

Question 3. If the Firm Holds Different Securities Does It Requires to Furnish Form PAS-6?

Answer:- Yes, Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 would apply for every class of security and in Form PAS-6 merely one ISIN can be inserted. Hence for distinct types and classes of securities different forms would be required to get filed. Form PAS-6 is an improvised ISIN that could be inserted. Hence the company would be required to file Form PAS-6 for all issued ISIN.

Question 4. Which Act or the Act Made Would Be Examined Even Certifying Form PAS-6 Via the Professional?

Answer:- Certification of Form would not merely be for the data filed in Form PAS-6 but the same is for the companies act 2013, Depositories Act, 1996, and all Regulations related to the dematerialization of Securities. 

Hence the compliances with section 29 of the companies act 2013 rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, Depositories Act, 1996 including with the laws furnished in it which is a matter to Form PAS-6 and would be examined and reported.

Question 5. For Which Division the Companies Are Required to File Form PAS-6?

Answer:- The companies which are public and not listed along with the subsidiary of the public companies would be obligated to file Form PAS-6. However, the government companies, wholly-owned subsidiaries, and Nidhi firms are unlisted public companies also these are not ought to file Form PAS-6. 

Under Section 2(52) of the companies act, 2013 which is a listed firm discloses that the firm secures any of its securities listed on the recognized stock exchange.

The Companies (Amendment) Bill, 2020, is to be authorised via the Lok Sabha and Rajya Sabha seeks to furnish the provision in the same section in which the same qualifies the central government to prioritize, for the discussion of SEBI some of the firms that have listed or could be listed for the precise class of securities from the recognition that for listed firms. 

The revision in section 2(52) maintains the goods and the central government specified the regulation related to different firms that might be classified as ‘unlisted public companies that are currently not considered to be unlisted public firms. 

Question 6. Is Rule 9a of Firms (Prospectus and Allotment of Securities) Rules, 2014 Subjected to Be Applicable for (A) an Unlisted Public Company but Debt Is Listed, or (B) Private Company However Debt Is Listed or (C) an Unlisted Public Company and Debt Is Unlisted?

Answer:- For unlisted public firms the Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 is qualified. As per section 2(52) of the companies act 2013, the listed firms directed that the firm has its securities listed. 

Hence when the debt security is listed these firms (public or private) do not count under Rule 9A of the firms (Prospectus and Allotment of Securities) Rules, 2014. When the debt and equity do not being listed and the firm is a public company then Rule 9A of the firms (Prospectus and Allotment of Securities) Rules, 2014 is appropriate.

The same is compulsory to find out the specified provision (as per them as noted in answer to Q6 above) is requested to be cited in Section 2(52) of the Companies Act, 2013 (under listed company). When such revision in section 2(52) is good and the central government is related to this, the answer might be revised.

Read Also:- All You Need to Know About E-Form PAS-6 Filing FAQs

Question 7. If the Recorded Debt Firms Are Demanded to File Form PAS-6?

Answer:- According to the date of credential, the debt list companies would say to be the listed firms where the procurement of the firms act 2013, therefore the same would not be needed to file Form Form PAS-6 through ROC. Hence the applicant requests for the revision under section 2(52) of the companies act, 2013 (which is explained in Q6 and Q7 above) the very answer might be revised. 

Question 8. Does This Happen That the Debit-Listed Public Firms Furnish, Transfer or Hold the Equity Share in Physical Form?

Answer:- Under Chapter IV of SEBI (LODR) Regulations, 2015, the Debt listed firms are counted. Therefore the Debt listed public firms do not come under Rule 9A of the firms (Prospectus and Allotment of Securities) Rules, 2014, and count under Regulation 40 of SEBI (LODR) Regulations, 2015, on the debt-listed companies (public or private) there is no restriction to furnish the equity shares in physical form.

The applicant to request the revision under section 2(52) of the companies act 2013, (as explained in Ques 6 and Ques 7) there should be obligated to comply with the compliances.

Question 9. When the Company Carried Isin While Some Security Owners Do Not Interchange Their Securities to the Demat Form Is It a Non-Compliance with Section 29 of the Companies Act 2013 or Rule 9a of the organization (Prospectus and Allotment of Securities) Regulations, 2014 and If the Same Is to Be Eligible in Form PAS-6?

Answer:- As per rule 9A(4) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, when the company intended for ISIN and utility open for the Demat to all the security owners, the company needed to comply for the identical purpose. 

There is no time limit towards the revising and existing securities in the Demat unless there would be a securities issue or securities buyback emerging on the basis of the company or on the other security owners requesting for the company for the transfer of the shares.

However, the same companies needed to provide the half-yearly returns and are obligated to circulate that the securities are rendered merely via the members in the physical structure. 

Question 10. When the Debentures or Preference Shares Would Leave for Saving, Is This Indicate That It Could Be Redeemed in the Physical Form? Is Form PAS-6 to Be Filed for the Securities That Have Been Redeemed Completely in the Half Year?

Answer:- No limit would be there on saving the securities in the Demat form and therefore securing could be executed in physical form. When the securities would be taken completely at the end of half year, ISIN should be extinguished by building the application to the depositary. 

For e-Form, PAS-6 does not get filed. However, on the due date of the half year, i.e. September 30 or March 31 when ISIN (International Securities Identification Numbering) would be running till now but preference shares or debentures would be redeemed, Form PAS-6 would be obligated to get filed and the redemption of the preference shares or debentures may inside form via the mode of attachment which the redemption arrived on the place and the ISIN would get destroyed. 

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Information about Form PAS-6 and Frequently Asked Questions

 The PAS-6 form is used to reconcile share capital on a half-yearly basis. The same would be required to get submitted via the unlisted public companies to the Registrar of Companies (ROC). The major purpose of Form PAS-6 would be needed to notify the information and revise the share capital of the companies on half-yearly grounds. An individual who practices Company secretary (CS) or Chartered Accountant (CA) can certify it.

The Ministry of Corporate Affairs (MCA) launched Form PAS-6 via a notification on 10th September 2018. In the very notification, the MCA has inserted Rule 9A (sub-rule 8) to the Companies (Prospectus and Allotment of Securities), Rules, 2014 via the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2019. The same shall furnishes for the problem of securities exclusively in dematerialized form through unlisted public companies from 2nd October 2018. 

Read Also:- Know All About MCA Form PAS-6 For Unlisted Public Companies

All about PAS-6 (Reconciliation of Share Capital Audit Report on a Half-Yearly Basis)

• Section 29 of the Companies Act, 2013
• Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Furnishing the reconciliation of the share capital audit report on the half-yearly grounds of the unlisted public companies who had certified from Company Secretary in practice or Chartered Accountant in practice under 60 days from the closure of each half-year. 

Read Also:- Frequently Asked Questions (FAQs) on E-form PAS-6 | SAG RTA 

It is not applicable to the unlisted public company which is-

(a) a Nidhi company

(b) a Government company

(c) a wholly-owned subsidiary Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Form PAS-6 is obligated to be filed for each type of security, viz., equity and preference. The e- form relates only to share capital (equity and preference) and not with respect to debts (debentures, bonds, etc.)

Below is the Form Pas-6 FAQ's

Question - 1. When a company owns multiple securities, does it require to furnish multiple Form PAS-6?

Answer:  Yes

Question - 2. Do debt-listed companies are required to submit Form PAS-6?

Answer:- Yes 

Question- 3. Some security holders does not convert their securities in DEMAT form while the company has received ISIN does the same would be a non-compliance with Section 29 of the Companies Act, 2013 or Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and whether the same is to be qualified in Form PAS-6?

Answer:- When the company has the purpose of ISIN and available utility for Demat to all security holders under rule 9A(4) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 the company then followed on its end. 

Unless any issue of securities or buyback of securities happens at the Company level or any security holder seeks the Company for the share transfer there is no time duration mentioned to convert the current securities held in Demat. 

But these companies are required to furnish the half-yearly returns and are mandated to specify that the securities would be owned by the members in the physical form. 

Question-4. Is there any requirement to attach any documents/ supporting in PAS-6?

Answer:- No, you are not required to attach anything in the form of PAS-6.

Question-5. What is the penalty for late filing when ISIN generation is processing?

Answer:- Penalty under section 450 of the Companies Act, 2013 shall be applied.

Question-6. UDIN would not be needed to be generated for the certification of Form PAS-6?

Answer:- It does not essential 

Question-7. In Form PAS-6 shareholding pattern of the promoters, directors, and KMP is to be stated. What happens when the promoters are the directors and they hold 10,000 shares? Would 10,000 shares in the promoters class and 10,000 shares in the directors class be specified? Does the same is not said to be the miscalculation?

Answer:- You can cite any one category and attach clarification

Question-8. What shall be the penalty for late filing of Form PAS-6?

Answer:- Rs.10,000 is a one-time penalty and for continuing default Penalty of Rs.1000 per day on the company, the officer in default under section 450 of the Companies Act, 2013 will be applicable as per maximum of Rs.2,00,000 on the Company and Rs.50,000 per officer in default.

Question-9. What is the last date to file PAS-6?

Answer:- 

• The last date to file PAS-6 is 60 days from the conclusion date of each half-year.
• That is Half year ended 31st March: 30th May; and
• Half year ended 30th September: 28th November.

Question-10. Does the promoter, director or KMP would be needed to dematerialize the securities owned via them or the class of securities that the company wants to issue?

Answer:- Prior to issuing any shares all the securities, equity shares, preference shares, or debentures that the promoter owned, director, or KMP would need to be materialized.

Question-11. What is the method to obtain the Demat connectivity through the company?

Answer:-  

• Conduct a board meeting to acknowledge and approve the proposal to take DEMAT connectivity regarding securities with the depositories.
• Appoint a Registrar and Transfer Agent (RTA);
• Post RTA appointment, the company furnishes the application including the related documents with the depository to take DEMAT connectivity:
• The company, depository along with RTA would insert into Tripartite agreement for the securities which would be shown as qualified to be held in dematerialized form;
• Post application verification along with additional documents the depository shall furnsihed DEMAT connectivity to the company and provide ISIN to securities of the company.
• After that, the company shareholders might approach RTA for the dematerialization of their securities.

Question-12. What would be the obtained outcome for the company as well as its shareholders when they do not convert their shares in DEMAT?

Answer:- 

• The company shall not arrive with the below-mentioned things:
• The issue of the new securities with the right issue along with the bonus issue,
• Securities buyback 
• Shareholders are not able to transfer their securities.

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SEBI Authorized and Category 1st RTA Agent For Mutual Fund Investor

The full form of RTA is Registrar and Transfer Agents, such firms would be enrolled with the Securities and Exchange Board of India (SEBI). In mutual fund companies, the Registrar and Transfer Agent is used to maintain the records. Towards the investors, RTA act as a single window reference. The outcome of that would be that they could collect all the mutual fund investment-related data via RTA.

Between the investors and mutual fund houses, the registrar and transfer agent (RTA) acts as a mediator. These financial institutions used to hire RTAs towards handling and maintain the records effectively for the data of the investors. The proper maintenance of the records of the investor data, like account balances and transactions, is being managed by the RTA agents. 

SAG RTA, 3i Infotech Ltd., CAMS (Computer Age Management Services), and Karvy are counted as prevalent RTA companies in India. They propose Registrar & Transfer Agent Services propose Registrar & Transfer Agent Services to financial institutions, mutual fund companies, and investors.

What is the Registrar and Transfer Agent Role for Mutual Fund

RTAs' role, monitors the transactions of the investors in the mutual funds. It consists of various kinds of investor transactions like buying, redeeming, and switching in or out of an investment. Registrar and Share Transfer Agent supports the people to amend the bank mandates and update their personal details. 

RTAs would be qualified with the professional skills towards maintaining the investor along with the AMC information. All the transactions of the investor would get maintained through one company.

Despite the investment might perform with various AMCs. most of the RTAs are having a link with other countries for the same context. Online services are available which the RTA incurred.

The services proposed through the registrar and transfer agents

Towards both the AMCs and investors, the Registrars and transfer agent furnish their services.

For Mutual Fund Investors

Investment and transactions: With the help of a portal RTA provides its services. Their system would empower investors to transact with mutual fund companies. You could invest in NFO or transact with an enrolled MF company through an RTA.

 

An R&T agent generates distinct kinds of statements like CAS, portfolio valuation statements, transaction details of a single folio, and gains statements. An investor is enabled to analyze these statements to reevaluate their mutual fund.

The mentioned below service requests can be placed by any investors with the RTA:

• Revocation or stoppage request of an ongoing SIP, STP or SWP
• Modification in bank mandate
• Consolidation of all investor folios under a single folio
• Nomination form
• Updation of records of a minor to major for an individual (change in the guardian, tax details, update investor name)
• Redemption
• CKYC forms and a few others are examples of service requests.

For AIF Investors

The below-mentioned services would be provided to AIFs and PMS:


• The below-mentioned services would be provided to AIFs and PMS
• Investor servicing
• Fund accounting
• Value-added services
• KYC
• Pre-launch support
• Document management services
• Knowledge and technology partner

For Mutual Fund Distributors

RTA Services to MF (Mutual Funds) distributors. They could assist the distributors to buy/sell funds on the grounds of the investor. MF distributors are able to submit the online application forms (scanned copies prepared through a scanner installed in the agent’s office). 

Hence their agents would not be required to give a physical presence at the RTA office by 3 PM. Before that, 3 PM was the cut-off time to submit the application for investment. An applicant is entitled to the same day’s net asset value or NAV only when their application was submitted prior to the cut-off time. 

Agents indeed generate the sales report performed through them in the mentioned duration. The information could be drawn for any frequency as required monthly, quarterly, or yearly. On the website of the RTA, a distributor can mention his needs to obtain the reports. 

A recent service would be started by RTA Know-Your-Customer (KYC) forms for investors. Likewise, they indeed process know your distributor forms for the distributors. Some RTAs like CAMS service insurance companies also.

For Mutual Fund Companies

RTAs secured links across the country which would assist the fund houses to lessen costs. They would set up offices all over India and directed that the fund houses not be required to open branches at these locations. 

RTA is used to deliver electronic communication like account statements, newsletters, or other important communication from the AMC. They furnished essential information to investors and distributors. 

Registrar & Transfer Agent levies the fund houses for their services. This cost would ultimately be handed on to the investor as a portion of the yearly cost imposed via MF houses. The cost for equity funds would be about 10 basis points (bps). One bps would be equal to one-hundredth of a percentage point. It is near 5-7 bps for debt funds and about 3-4 bps for liquid funds.

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Choose The Best R&T Agent for Mutual Fund House Services

A mutual fund investor performs various transactions such as buying, selling, or switching units. They can request an amendment in the bank information or address. Each request is a transaction by itself. Mutual fund houses need to maintain the records of every transaction. 

Mutual fund houses might not want to invest in the same process nor will they have the experience to manage these bigger transactions on professional grounds. But they want to outsource the same work to an agency, which could manage these requests via investors. To attain success in this job the Registrar and Transfer Agent support them. 

An R&T agent helps mutual fund companies with record maintenance, via offices all over the country. Computer Age Management Services SAG RTA, (Cams), Karvy, and Deutsche Investor for RTA Services are the major agents. An R&T agent possesses a wide network of branches all over the country, which helps the investors to get forms of fund houses, finish their transactions, and receive their account statements. The same acts as a single-window system for investors. 

A Registrar & Transfer Agent assists the investors with the data on the new fund offers, dividend distributions, or even the maturity dates for the case of the FMPs (fixed maturity plans). But this information is available via houses, an R&T agent provides data for all. The investors could obtain the data for several investments in various policies of distinct fund houses in a single place. 

Through the stand of mutual funds, R&T agents provide effective services and help in saving the cost. Since R&T agents have offices all over the country, they indeed considered branches for the mutual funds which they provide and assist them in their sales mechanism. Normally the investors seem to invest in various policies of various fund houses. Under the compliance of the Securities and Exchange Board of India, there is a cut-off time when the investment needs to be made qualified for that day's NAV. 

Thus when the investor needs to make numerous investments, he would be required to ask various fund houses. Rather than that, he would use Registrar & Transfer Agent Services to run all his transactions and make the investments. 

The mutual fund house furnishes the money for the services that R&T agents provide. The charges rely on the transaction volume performed towards the mutual funds. The mutual fund then takes fees for these types of expenses to the expense ratio of the fund. As an investor during the execution of the transactions at the R&T agent's office, you would not be required to furnish any charges.

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Difference Between Listed and Unlisted Company

Basically, there are two basic types of companies i.e. listed and unlisted companies. Both share the same goal of profit maximization, but there are many key differences between them.

Other than size, structure, and way of raising capital, their ownership is the fundamental difference between both. While the listed companies are owned by many shareholders, non-listed or unlisted companies are owned by private investors.

Listed Company

A company to be listed on the stock exchange will be considered a listed company. Someone can freely trade its shares on the stock exchange, and investors can buy and sell shares at their discretion. Such investors after purchasing the shares become shareholders of the company. 

A company has the option to be listed on the main market (for bigger and established companies) of the stock exchange or in the alternative investment market (for relatively new companies).

A board of directors appointed by shareholders takes all the decisions of a listed company. This board consists of both executive and non-executive directors. Various corporate governance requirements often specify and govern board creations.

All the decisions made by boards need to be shared with shareholders in a timely manner, and board resolutions should be passed in making some important decisions. Shareholders are entitled to two types of returns by investing in a listed company.

Dividends

Dividends is money paid by a company at regular intervals from its profit to its shareholders. While some shareholders prefer to cash in dividends, others choose to reinvest their part into a business known as the dividend reinvestment concept.

Capital Gains

Capital gain is defined as the net profit that an investor makes after selling capital/investment for more than the purchase price of the property. The entire value earned from selling a capital asset will be considered as taxable income.

There are various rules and regulations listed companies are liable to follow along with some definite requirements to fulfill in terms of preparation of financial statements.

There are standard formats for major financial statements which include a statement of financial position, income statement, statement of cash flows, and statement of change in equity. Further, these statements must have to be prepared and submitted in accordance with the Generally accepted accounting principles (GAAP).

The Sarbanes-Oxley Act 2002 is an important regulatory act developed especially for the reporting and disclosure requirements of listed companies, and it protects the interests of investors.

During the last few decades, such regulatory acts remained consistently strict because of large corporate scandals such as Enron (2001) and WorldCom (2002)

Unlisted Company

Companies that are not listed on the stock exchanges are known as unlisted companies. We also know these companies as privately held companies. As they are not listed on the stock exchange thus they can’t raise finance through share offers to public investors. Meanwhile, they can issue shares to well-known parties such as family and friends to increase equity.

Shares are traded "over the counter", where the specifics of the deal can be tailored to the requirements of the parties (buyers and sellers) involved; Thus, the exchange of control doesn’t take place in the case of an Unlisted company. Unlisted companies have better control over their business functions.

Listing on the stock exchange is not mandatory for a company to be successful. Unlisted companies also have some benefits, as financial results reporting requirements are not subject to strict rules, thus being flexible and less complex.

Difference between Listed and Unlisted Company?

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Find Out Step-by-step Guide About Transfer of Shares in India

It is common for shareholders in small & private companies to often dilute or transfer their equity stake to another person. This usually happens when either the stakeholder is ill or he wants to transfer shares to a family member. This is when the transfer of shares takes place.

The Companies Act, 2013 specifies a proper procedure for the transfer of shares. It also prohibits any company to Register and Share Transfer Agent of its shares without the execution of the proper instrument and unless the requisite stamp duty is paid and details of the Transferee & Transferor are provided.

Here you can read about the detailed process along with compliance for the transfer of shares for private companies.

How Transfer of Share Works

To start with the transfer of shares, the respective party must first acquire the form SH-4 for Share Transfer Deed. The details of time, date, no. of shares, name of transferor & transferee, amount of consideration, address, occupation, distinctive no. of shares, etc. must be furnished in the form. The Share Transfer Deed or Instrument is then executed and stamped properly.

In the next step, both the share transferor and transferee are required to prepare their respective sale/purchase invoices and submit the same along with their share transfer application to the Board of Directors of the company.

The Board of Directors will then conduct a board meeting to decide on and approve/reject the registration of transfer of shares. If approved, requisite entries in registers and certificates will be made to complete the transfer.

Time Frame for Execution & Delivery of Share Transfer Instrument to Company

Section 59 of the Companies Act, 2013 specifies the time limit for the execution and delivery of the Share Transfer Instrument, along with share certificates for transfer, to the company as a period of 60 days from the date of execution. In short, the Deed must be submitted to the company within 60 days from the date it was executed.

What to do If The Instrument of Transfer is Lost Post-execution and Before Delivery to The Company?

In the case when the Instrument of transfer is lost after execution or could not be submitted to the company within 60 days, Section 56 of the Companies Act allows the company to register the transfer of shares on the grounds of indemnity on such terms as the board finds suitable.

However, if the instrument of transfer is not submitted to the Company because of the death of Subscriber, the company board is required to register the transfer and must transmit the said shares to the legal heir or nominee of the subscriber.

Read also: Do You Really Know About Difference Between Share Transmission & Share Transfer? 

Stamp Duty Fee on Transfer of Shares

The stamp duty fee for the transfer of shares is fixed at 0.25% of the total consideration amount. The applicant must purchase the court fee stamp of the said amount and paste the same on his/her application. The fee is fixed irrespective of the state of the applicant/company.

Transfer of Partly Paid-up Shares

In case if a person wishes to transfer partly paid-up shares, the transferor himself/herself has to furnish an application with the company. The company will then send a notice to the transferee for acquiring a ‘No Objection Certificate’ to complete the transfer.

If the transferee sends his/her reply within 2 weeks of receipt of the notice and shows no objection to the transfer of shares, only then the company can process the application and approve the transfer.

Step-by-step Procedure for Transfer of Shares in Depository System

Here’s the procedure to request for transfer of shares by depository:

1. The transferor has to make a request and provide delivery instructions to the Depository Participant No. 1 (DP1) to transfer the shares as well as debit the transferor account against the shares from clearing member 1 pool account with DP1. Upon receiving this request, the clearing member-1 pool sends a receipt instruction to DP1, instructing it to accept the Share Transfer Agent in his/her account. Finally, the securities are transferred from the transferor account to the clearing member 1 pool account with DP1.
2. The clearing member 1 then instructs the Clearing Corporation (CC) to debit his Clearing Member 1 Pool account and credit the securities to his Clearing Member 1 Delivery account. The transfer of securities will take on the date of execution as mentioned in the instruction.
3. Until the settlement, the securities remain in the clearing member 1 delivery account. On the settlement day, the securities in the clearing member 1 delivery account are automatically transferred to the Clearing Corporation account.
4. Now, the securities automatically transfer from the Clearing Corporation account to the Clearing member 2 receipt account with DP2, with no instruction required to be set up.
5. After that, the securities are transferred from the receipt account of Clearing Member 2 to his/her pool account.
6. Clearing Member 2 then instructs Delivery Partner 2 to debit his pool account and credit the securities to the buying client account maintained with DP 2. The buyer at the same time gives a receipt instruction to DP 2 to accept securities in his account.
7. The securities are then transferred from the clearing member 2 pool account to the buyer’s account maintained with DP 2.

Note: No stamp duty is levied in case of transfer of shares in DEMAT form.

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All You Need to Know About E-Form PAS-6 Filing FAQs

The PAS-6 form was notified by the Ministry of Corporate Affairs (MCA) on 15th July 2020. The due date for filing the PAS-6 form by companies governed by the Rule 9A of the Companies Rules, 2014 was 13th September 2020, however, the MCA has extended the due date till 31st December 2020.

Q.1 – What is Rule 9A?

The Ministry of Corporate Affairs through the notification released on 10th September 2018 introduced Rule 9A under Companies (Prospectus and Allotment of Securities), Rules, 2014. The said rule is concerned with the issue of securities in Demat form by Unlisted Public Limited Company in India and became effective from 02nd October 2018.

According to Rule 9A,

Every unlisted public company shall –

• issue all future securities only in dematerialised form; and
• Convert all its existing securities into Demat form

This shall be done according to the provisions and regulations of the Depository Act, 1996.

Q.2 – What is Dematerialization?

Dematerialization refers to the process of converting physical share certificates into electronic forms, which aims to enhance transparency, security, and corporate governance.

Q.3 – What Are The Various Features of Rule 9A?

• Every unlisted public company is required to issue future securities only in Demat form and must also convert all its existing securities into Demat (with unique ISIN for each type of security).
• Before the company can make an offer for the issue of securities, it must convert all securities of its promoters, directors, KMP in Demat form.
• Every securities holder of such a company must get their securities converted into Demat form before they can transfer it to another person.
• Submission of reconciliation of share capital audit report.
• Security holders of the company shall file their grievances directly before the IEPF Authority.

The said rules of Rule 9A shall also be applicable to Deemed Public Companies, i.e. private companies which are subsidiaries of a public company. The rule, however, shall not apply to an unlisted public company which is either a Nidhi or a government company or a wholly-owned subsidiary.

Q.4 How to File PAS-6?

The PAS-6 form must be filed by every unlisted public company which is governed by Rule 9A. The form will be submitted to the Registrar of Companies along with such fees as provided in Companies (Registration Offices and Fees) Rules, 2014 and must be filed within 60 days from the completion of a half year. Did you want to find out about the best RTA Agent? if yes then you can choose our SAG RTA: A SEBI authorized Rajasthan's 1st Registrar and Share Transfer Agent Services provider company.

Any of the following persons are authorized to file PAS-6 on behalf of his/her company:

• Director
• Manger
• Company Secretary
• CEO
• CFO

Q.5 What is PAS-6 Filing Frequency & Due Date?

An unlisted public company is required to file two PAS-6 forms in a year for the following category of securities:

Q.6 – How to Obtain ISIN?

Any eligible company can obtain ISIN by filing a request with the concerned authority. If a company fails to obtain ISIN, they will be liable to pay a penalty under Section 450 of Companies Act, 2013 (punishment where no specific penalty or punishment is provided).

Can a company still file PAS-6 if it has not dematerialized its shares by 31st March 2020?

Yes. In such a case the company must provide details of physical shares in the column that says “shares held in physical form”.

Read also: All You Need to Know About Filing of E-Form PAS-6 by Unlisted Public Companies

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Know More Information About Preference Shares

Another name of preference share is known as preferred stock. These are the shares that are denoted to the company's stock on which the dividend is to be given to the shareholders prior to the allotment of the common stock dividends. But once the business gets bankrupt then Preferred Shareholders are liable to be paid prior to the ordinary shareholders from the fixed or variable assets of the organization. 

The majority of the preferred shares have fixed dividends while the common stocks do not have. Also, the preferred shareholders do not have the right to vote. While the ordinary shareholders do have. Preference Shares lie beneath the 4 sections participating preferred stock, cumulative preferred stock, non-cumulative preferred stock, and convertible preferred stock.

Read Also:- The Difference Between Equity Shares and Preference Shares of a Company

A cumulative preferred stock consists of the procurement which proposes the company to pay all the dividends to their shareholders, it constitutes those who were not present before when the dividends can be taken from common shareholders. The type of payments can be given but it can not always be furnished when it is not filed.

Read Also:- What All You Must Know About The Allotment of Preference Shares?

Understanding Preference Shares

The dividends in installments are given to unpaid dividends and should legally move with the owner of stock during the furnishing of payment. The owner of this preferred stock shall be given an additional consideration that is interest. 

The non-cumulative preferred stock will not deliver missing or delayed dividends. If the company assumes not to give any dividends in the particular year then the non-cumulative preferred stock owner will not have the right or power to avail that overlooked dividend in the future times.

Read Also:- Key Difference Between Allotment of Shares And Issue of Preference Shares

The owners have the power to take the dividends relevant to the commonly recognized rate which they opted but this can be claimed when people own the preferred stocks also they shall be given an added dividend dependent on a predefined situation. 

There is an option by which the preferred shareholder can convert their preferred shares into the number of ordinary shares, commonly at any time post to pre-establishment date. In the regular events at owners please, the convertible preferred shares are reciprocated.

The preference shares are said to be corporate shares with the dividends issued to the shareholders prior to paying the dividends to the common shares. There are 4 classified preferred stocks such as non-cumulative, convertible, participating, cumulative(guaranteed). 

For cautious investors, preferential shares are ideal the issuer can purchase those ones at any time.

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The Difference Between Equity Shares and Preference Shares of a Company

Investments are important in today’s uncertain age. You can not depend on a single source of income for fulfilling your needs. Everybody should invest in something to gain an additional income. If you want to make an investment in the shares of the company, then before purchasing you should be informed about the types of shares and the difference between them. If you make an uninformed investment, there are good chances that you might face losses from your investment. There are two types of Difference Between Equity Shares and Preference Shares of a Company. Now let’s know about them in detail.

Preference Shares

Preference shares are the types of shares that are given preference over the equity shares while providing dividends to the shareholders and during the liquidation of the company or redemption of shares. The preference shareholders receive a dividend at a fixed rate already specified on the share certificates. Unlike equity shareholders, the preference shareholders are not considered the owners of the company. 

The word “preference” clearly shows that the preference shareholders are given preference at the time of the liquidation of the company and while the payment of dividends and thus are called “preference shares”. The preference shareholders are given a preference in liquidation and payments but unlike the equity shareholders, they do not enjoy any voting rights in the meetings and other important decisions of the company. In the case of liquidation of the company, firstly, the creditors are repaid and then the preference shareholders. The equity shareholders are the last ones to be repaid. The preference shareholders are also given arrears if the dividend for any previous year is not provided to the shareholders. 

Types of Preference Shares

• Participating Preference Shares/ Non-Participating Preference Shares
• Convertible Preference Shares/ Non-Convertible Preference Shares
• Cumulative Preference Shares/ Non-Cumulative Preference Share

Equity Shares

Also termed as ‘General Shares’, equity shares are considered a part of the total capital of the company. The equity shareholders are called the owners of the company. Equity shares are the type of share that is not given any preference during the liquidation of the company or while payment of dividends. The rate of dividend of the equity shareholders is not fixed. There may be times where such shareholders may not get any dividend at all. The dividend provided depends upon the profit earned by the company. The decision of rate and amount of dividend is decided by the directors of the company. Unlike the preference shareholders, the equity shareholders have the right to vote in the general and special meetings of the company. They also have the right to appoint or remove any director or auditor of the company. 

Types of Equity Shares

• Sweat Equity Share
• Authorized Share Capital
• Issued Share Capital
• Subscribed Share Capital
• Paid-up Capital
• Rights Share
• Bonus Share

Read Also :- Shares and Debentures: Similarities & Dissimilarities

Difference Between Preference Shares and Equity Shares

Conclusion

While making an investment, you can choose between preference shares and equity shares according to your needs. If you want a stable income from investment then you should opt for preference shares but if you want to be an owner in a company, then you should invest in equity shares. Other features of the types of shares should also be kept in mind before making an investment and an informed decision should be taken thereafter. 

SAG RTA, most important & Rajasthan's 1st RTA Agent Company that provides one of the best services for RTA. The company has been granted the role of a registrar and transfer agent via authorization by the Securities and Exchange Board of India.

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What All You Must Know About The Allotment of Preference Shares?

Preference Shares

Shareholders have percentage ownership in the profits of the company and if talking about Preference Shareholders, they are the ones who are paid before the regular shareholders at the time of maturity. 

As per Explanation (ii) section, 142 of Companies Act 2013, Preference Shares are a part of the company’s capital, the owners of which are preferred over others when it comes to payment of dividends (fixed amount or rate) or at the time of repayment of shares when the company is permanently winding up. 

As per Explanation (ii) section 142 of Companies Act 2013, the category of shares showing any of the below-mentioned characteristics are considered to be preferential shares: 

• Preference shareholders have the right to own the normal shares in a certain amount. 
• While dividend payout preference shareholders are allowed to participate (fully or partially) in the distribution of surplus profit of the company. 
• Preference shareholders are paid the first whenever the company decides to disperse the profits. 

Read Also: Preference Shares and Its Different Types?

Sub-Categories of Preferential Shares

There are a total eight kinds of preferential shares allotted to the shareholders as per their choices and availability in the share market. They are different from each other but share one common characteristic and that is they all are paid before ‘Equity Shares’. 

• Cumulative: Annual payment (at fixed rates). If the company fails to pay then the liability adds on to the next year’s liability.  
• Non-cumulative: Annual payment (at fixed rates). If the company fails to pay in the current year liability shall not be carried to the next year.  
• Redeemable: These shares can be redeemed either after a specific period or after giving due notice (by the shareholder). 
• Non-Redeemable: These cannot be redeemed under any situation until the maturity (at the time of winding up). 
• Convertible: Such preference shares could anytime be converted into Equity Shares (under special circumstances). 
• Non-convertible: Such preference shares cannot be converted into any other kind of shares anytime. 
• Participating: Such shareholders have the right to participate in the company’s additional profits.  
• Non-Participating: Such shares provide no additional profit if the company has gained a surplus.

Who Can Avail of The Preference Shares in The Company?

• Existing Equity Shareholders. 
• Employees of the company
• Shares acquired via Private Placement of Shares.

Conditions For Preferential Allotment Of Shares

• The offer of shares has to be approved by the shareholders of the company. 
• Article of Association should issue shares through PAS.
• A company could offer the shares through a Private Placement Offer Letter to not more than 200 people. They can be individuals or any entity. 
• Finalising the ultimate achievers of the shares and the percentage offered to them.
• Allotment of preference shares takes around 12 months from the date of passing a special resolution. 
• The issuer company prepares an Offer letter in form PAS-4 and prepares PAS 5 for maintaining the records. The value of the offer made by the company should not be less than 20,000 (security face value). 
• The price of shares shall be determined as the price mentioned in the valuation report of the registered valuer. 
• With the offer letter, there is an application that has ab serial number and address of the person to whom shares are granted. 
• Till the allotment procedure is going on, the grant of any other share or security type is restricted. No invitation will be sent to the shareholder of any other kind of share purchase.   
• Payment for share allotment shall be done only via bank accounts. The shareholder must deposit the money in the company’s bank account that is especially for security money transactions (or repayment for securities).  
• Companies can not make share offers through advertisements or on social media (no right to inform the public on a large scale). 
• There is no limitation on a number of shares to be allotted to the shareholder in an FY. 

Process For Issuing Preference Shares

• Board meetings shall be held by the company and the approval of offer letter for preference shares having the name of the person to whom shares are allotted. 
• An explanatory statement containing a number of shares, nature, objective, price, current shareholding pattern, rate of dividend and other terms of allotment. 
• The company holding EGM - for presenting the prepared PAS-04 (offer letter) and pass the special resolution in front of board members. 
• Dispersing the offer letters accompanied by the application (either by a hard copy or electronic modes). 
• The company shall file SH-7 and MGT-14 with the registrar within 30 days of passing the special resolution. 
• Explanatory Statement, details of GM, duration of GM and certified true copy of Special Resolution (attachments with the forms). 
• Opening separate bank accounts for the transaction of securities. 
• Conducting a board meeting after allotment money is received. Issue notice of board meeting to all board members along with the agenda of the board meeting. 
• In the board meeting present the final list of allottees, board resolution for Allotment of Shares, pass a resolution for issuing Share Certificate, authorized persons to sign the share certificates. 
• The company must file PAS 3 with the registrar of companies along with documents such as a list of allottees, board resolution for allotment of shares.
• Dispersing Share Certificates in Form SH-1 two months from the date of allotment of shares. 
• Maintain a register of the members as mentioned U/S 88 of Companies Act 2013. 

Redeeming the Preference Shares

• There should be no balance in the payment for preference shares. 
• A company can redeem its shares only after a certain period, the company’s options or after due notice given by the shareholders, or at maturity. 
• CRR should be presented. 

Procedure to Redeem The Preference Shares

• Meeting of Board of Directors (issuing the notice 7 days before the board meeting is scheduled + agenda of the meeting)
• Passing Board Resolution related to Redemption of Preference Shares. 
• Present letter of redemption in the board meeting. 
• The company must file SH-7 within 30 days of passing the Resolution with a certified copy of the resolution.  

Read Also: Equity Shares: Classification, Benefits & Drawbacks

When Shares Cannot be Redeemed

• If the company is not able to redeem the shares or is unable to pay the shareholder then it is possible for the issuing company to replace the issue. 
• Redemption of preference shares by issuing new preference shares can be done only after the approval of the Preference Shareholders (at least 75% of the stakeholders should be in favor of the decision). 
• The Tribunal thereon orders the company to immediately redeem the preference shares of the shareholders who are showing their disapproval to the decision of the company. 

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Know About Types and Difference Between Equity and Preference Shares

Before going over the difference between equity and preference shares lets understand the meaning of shares. Funds are required for running any business whether big or small. There are a lot of sources in the market from which an individual can raise funds for the business. Share is a source of raising funds for the fulfillment of day to day or other types of requirements of a company. 

Share is a part of equity if a company. It denotes the ownership of a company. If you own 10% shares of a company it means that you own 10% of the company. The rate of shares keeps fluctuating according to the demand in the market. 

There are two Types of Shares Equity Shares and Preference Shares. Both are similar in a lot of ways but have some characteristic differences that separate them from each other. 

Read Also: Equity Shares: Classification, Benefits & Drawbacks

Equity Shares:

The word shares are often referred to the equity shares. When people say shares they generally mean equity shares. Equity shares provide a part of ownership in a company thus involves a lot of risks. 

Dividends received by the Equity Shareholders depend upon the total profit earned by the company so it is possible that equity shareholders may not get any dividend if the company has insufficient profits at its disposal.

Preference Shares:

The preference shareholders are given preference over the equity shareholders when provided dividend by the company. The preference shareholders are given a fixed percentage of dividends despite the change in the profits of the company. The percent of dividend is pre-decided and written on the preference share agreement. 

Difference Between Equity and Preference Shares:

• Rate of Dividend

The rate of dividend received by the preference shareholders is fixed unlike that of equity shareholders as equity shareholders receive dividends according to the profits earned by the company.

• Issue of Shares

It is mandatory to issue equity shares through Initial Public Offer while the issuance of preference shares depends upon the wishes of the company.

• Trade

Equity shares can be traded in the share market easily while the preference shares can not. Thus there is no change in the face value of preference shares over time.

• Types of Shares

There are different types of preference shares like participating preference shares, convertible preference shares, etc. but there is only one type of equity share.

• Price

The price of preference shares is higher than that of equity shares which means it can not be afforded by everybody.

• Handling while Liquidation

The preference shareholders are paid before the payments of equity shareholders in case of liquidation of the company.

• Repayment

The preference shareholders are repaid by the company after a fixed period of time while the equity shareholders may or may not get repaid.

• Voting Rights

The equity shareholders enjoy the right to vote in the AGMs and GMs of a company, but the preference shareholders are not given the right to vote.

• Bonus Shares

The equity shareholders can easily claim bonus shares, unlike the preference shareholders. 

• Dividend

If the preference shareholders are not given dividends for a year then it gets accumulated in the next year, while equity shareholders may or may not receive a dividend for any year. 

• Conversion

The preference shares can be converted into equity shares but equity shares can not be converted. 

Read Also: Shares and Debentures: Similarities & Dissimilarities

Both types of shares have their own benefits. It totally depends on the needs of an individual, which one does he want to purchase.

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Shares and Debentures - The Capital Raising Tools for Companies

Running a startup is an unrealistic idea until you have a huge amount of money/capital to invest in the assets and infrastructure. Making huge investments alone is quite impossible for any individual or group and here comes the need for them to ask for help (capital) from the outsiders (investors) in lieu of the shares/debentures in the company. 

However, there are other ways for a company to get loans but the most preferred way of raising the capital for them is by issuing the shares and debentures in their company to potential investors. There is a cyclic process of development, the more the investors invest in companies, the more the companies will yearn profits which will lead the company to progress. The company earning good will give more profits to its stakeholders who are owning shares and debentures in the company. 

Shares and Its Kinds

Shares are granted by the company in lieu of the investment made by the investor and thus the investor/shareholder becomes a partial owner in the company. The entire capital needed by the company is divided into smaller units that have the same monetary value. These units or Shares are offered to the investors in lieu of capital given by them. Further the transaction of shares is authenticated by the purchase issued by the company to the shareholder. The purchase is called ‘Share Certificate’. 

The value of shares for purchase is called ‘Share Price’ and the actual value of the shares that is written in the books of account is called Par/Nominal/Face value of the shares. From the overall profit earned a part is kept with the company and the rest is diffused in between the shareholders in the form of ‘Dividend’. 

‘Dividends’ are the returns of the investment made by the investor. 

Also Read:- All You Need to Know About Debentures, Its Types, Advantages and Disadvantages

Kinds of Shares

• Equity Shares - One cannot redeem the shares once they have invested in it. The only way here to get the money before the dividend is by selling the shares to another investor who is interested in the deal. While dispersing the dividends equity shareholders will get their percentage after the preference shareholders are done. Equity Shareholders have Voting Rights in the Company. 

• Preference Shares - Such shareholders are paid dividends at a fixed rate and get an upper-hand when it comes to paying dividends. Such shareholders have on voting rights in the company’s major decisions. 

Debentures and Its Kinds

A business needs capital to progress and therefore it takes loans from the potential investors in lieu of Debentures. Debentures can be held by banks, financial institutions, and individual investors. People or groups owning debentures are called ‘Debenture Holders’ in the company and the proof of ownership they hold is called 'Debenture Certificate’.

Debenture holders in the company are also denoted as ‘Creditors’. The group of debenture holders is paid no matter if the company is in a loss or profit. Interests are paid to the investors (on regular intervals or upon maturity) and the loan amount is repaid to them upon maturity of ‘Loan Bond’. They are denied any voting rights in the company.    

Kinds of Debentures

Depending on the nature of payment or maturity period, below mentioned are some types of debenture:

1. Redeemable Debentures
2. Irredeemable Debentures
3. Bearer Debentures
4. Registered Debentures
5. Convertible Debentures
6. Naked Debentures

Shares V/S Debentures

Though both are the mediums of raising capital for the company there is a difference in the pattern the profit is distributed among the Types of Shares and Debentures.

• Returns

Shares - The rate of dividend is entirely based on the profits earned by the company.

Debentures - The rate of interest is fixed no matter if the company is in profit or loss.

• Payment Policies

Shares - Shareholders are paid after debenture holders get their interest.

Debentures - Debenture holders get the priority over shareholders when it comes to payment of interest or dividend.

• Obligations

Shares - The dividend earning of the shareholder entirely depends on the profit earned by the company. The company is not obliged to pay if there is no profit.

Debentures - The company is obliged to pay interest to the debenture holders no matter the company is in profit or loss. It is anyways the interest on the loan that the company has taken and it needs to repay.

• Companies Exiting

Shares - Shareholders might lose their part of ownership in companies’ profits if the company winds up its business.

Debentures - Companies while winding up their business are liable to pay the entire amount of the investment to debenture holders.

• Right To Vote

Shares - Shareholders enjoy the right to vote in the major decisions of the company.

Debentures - Debenture holders are denied any voting rights in the major decisions of the company.

• Companies Exiting

Shares - Shareholders might lose their part of ownership in companies’ profits if the company winds up its business.

Debentures - Companies while winding up their business are liable to pay the entire amount of the investment to debenture holders.

• Risk

Shares - The risk of losing the profit is more are the shareholders are paid from the residual profit of the company.

Debentures - The risk of profit earning is NIL as they get timely interests and loan repayment on contract maturity regardless of the company’s condition in the market.

• Redeemability

Shares - The shares once purchased are non-redeemable except in the case of preference shares.

Debentures - They can only be redeemed upon maturity. Interests are paid at regular intervals or in any other pattern decided.

• Maturity

Shares - Shares have no maturity period and therefore are paid only upon closing.

Debentures - Debentures have a maturity period that is mentioned on the debenture certificate and the company is required to repay upon maturity of those debentures.

Also Read:- Equity Shares: Classification, Benefits & Drawbacks

In the End

By the above discussion, it is evident that both shareholders and Debenture holders can be called investors of the company. Every company tries very hard to maximize the returns to shareholders and also to pay interest to debenture holders in time. By increasing the shareholder’s wealth company makes its shareholders loyal to the company for a lifetime.

Debenture holders and shareholders both are contributors to the progress of any company. Clearly debenture holders are a priority at the time of payment but a company never fails to bring in profits for its shareholders as well. In the worst cases, this happens that shareholders are left barehanded. Companies always try to yearn profit for themselves and their shareholders so that they (companies) can sustain for long. In fact, the right to vote is a benefit given to the shareholders because they are the ones who will be equally affected by the progress or breakdown of the companies.

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