Companies Act 2013 (Ch IV, Sec 43–72): Share Capital, Buy-Back & Bonus

PFRDA Grade A • SEBI Grade A • UPSC EPFO APFC • RBI Grade B

⚡ Quick Answer & AI Exam Snapshot (TL;DR)

Chapter IV (Sections 43 to 72: Share Capital and Debentures) of the Companies Act, 2013 is the highest-weightage company law chapter in SEBI Grade A, PFRDA Grade A, and UPSC EPFO APFC. While CrackTarget’s existing note covers Section 54 (Sweat Equity Shares), this complete module covers all remaining sections: Kinds of Share Capital & DVR Shares (Sec 43 — max 74% of total voting power), Securities Premium Account 5 Permitted Uses (Sec 52), Prohibition of Issue at Discount (Sec 53), Redemption of Preference Shares (Sec 55 — max 20 years, or 30 years for Infrastructure), Rights Issue & ESOP (Sec 62), Bonus Shares (Sec 63), Buy-Back of Shares (Sec 68 — 10% Board vs 25% Special Resolution; 2:1 Debt-Equity), and Debentures (Sec 71 — max 10 years, or 30 years for Infrastructure).

1. Master Section Map of Chapter IV (Sections 43 to 72 of Companies Act, 2013)

Section	Statutory Heading	Exact Exam Provision, Numerical Limit & Rule
Section 43	Kinds of Share Capital & DVR Shares	Two kinds: (i) Equity Share Capital (with uniform voting rights OR with Differential Rights as to dividend, voting, or otherwise — DVR) and (ii) Preference Share Capital. • DVR Voting Power Cap (Rule 4, amended Aug 2019): Shares with Differential Voting Rights (including SR shares) shall NOT exceed 74% of the total voting power at any point of time (and no longer requires 3-year profit track record!).
Section 46	Certificate of Shares	Issued in Form SH-1 within 2 months of incorporation/allotment (or 1 month of transfer). Duplicate share certificate issued within 3 months (45 days for listed cos).
Section 47	Voting Rights of Equity vs Preference Shareholders	Equity shareholders vote on every resolution. Preference shareholders vote only on matters directly affecting their rights/winding-up/repayment, UNLESS dividend on preference shares remains unpaid for a period of 2 YEARS or more—in which case they get the right to vote on EVERY resolution placed before the company!
Section 48	Variation of Shareholders’ Rights	Requires consent in writing of holders of not less than THREE-FOURTHS (3/4th / 75%) of the issued shares of that class (or Special Resolution of that class). Dissenting holders of at least 10% shares of that class may apply to NCLT within 21 DAYS to cancel the variation!
Section 52	Securities Premium Account (The 5 Permitted Uses!)	Under Section 52(2), Securities Premium Account can be applied ONLY for 5 specific purposes: 1. Issuing fully paid Bonus Shares to members; 2. Writing off the Preliminary Expenses of the company; 3. Writing off expenses/commission paid or discount allowed on any issue of shares or debentures; 4. Providing for the premium payable on the redemption of any redeemable preference shares or debentures; 5. Purchasing its own shares or other securities under Section 68 (Buy-Back). (Note: For prescribed Ind AS companies under Sec 52(3), only uses 1, 3 [for equity], and 5 are allowed!).
Section 53	Prohibition on Issue of Shares at a Discount	Except Sweat Equity Shares (Sec 54), any share issued by a company at a discount shall be VOID! 2018 Amendment Exception (Sec 53(2A)): A company MAY issue shares at a discount to its Creditors when its debt is converted into shares pursuant to a Statutory Resolution Plan or Debt Restructuring Scheme under RBI regulations or the Insolvency and Bankruptcy Code (IBC), 2016!
Section 54	Sweat Equity Shares	Issued to Directors/Employees for know-how/IPR/value addition (Special Resolution valid 12 months; Lock-in: 3 years; max 15% of paid-up equity per year or ₹5 Cr, whichever is higher, and max 25% of paid-up equity overall — 50% for DPIIT Start-ups for 10 years).
Section 55	Issue and Redemption of Preference Shares	• Irredeemable preference shares are strictly prohibited. • Max Redemption Period: Not exceeding 20 YEARS. • Infrastructure Projects Exception: Up to 30 YEARS, subject to redeeming a minimum of 10% per year from the 21st year onwards! • Can be redeemed ONLY out of Divisible Profits (requiring transfer of nominal value to Capital Redemption Reserve [CRR]) OR out of proceeds of a Fresh Issue of Shares. (CRR can be used ONLY to issue fully paid Bonus Shares!).
Section 56	Transfer and Transmission of Securities	Instrument of Transfer in Form SH-4 executed within 60 DAYS; company delivers certificate within 1 month of receipt of transfer/transmission intimation.
Section 61 & 64	Alteration of Share Capital (Ordinary Resolution)	Increase, consolidation, sub-division, conversion into stock, or cancellation of unissued shares (Notice to RoC in Form SH-7 within 30 days).
Section 62	Further Issue of Share Capital (Rights Issue & ESOP)	• Rights Issue (Sec 62(1)(a)): Offered to existing equity holders in proportion to paid-up capital; offer must remain open for a minimum of 15 DAYS (reducible to 7 days for Private Cos; 7 days under SEBI ICDR) and maximum of 30 DAYS; includes Right to Renounce. • ESOP (Sec 62(1)(b)): Requires Special Resolution (Ordinary Resolution for Private Cos); minimum 1 YEAR Vesting Period between grant and vesting of options!
Section 63	Issue of Bonus Shares	• Capitalization of profits/reserves to issue fully paid-up bonus shares. • 3 Permitted Sources ONLY: (1) Free Reserves, (2) Securities Premium Account, and (3) Capital Redemption Reserve (CRR) Account. • Strictly Prohibited Source: Bonus shares shall NEVER be issued by capitalizing Reserves created by the REVALUATION OF ASSETS, nor issued in lieu of dividend! Once announced by the Board, a Bonus Issue CANNOT be withdrawn.
Section 66	Reduction of Share Capital	Requires Special Resolution + Confirmation by NCLT (Notice to RoC, SEBI, and Creditors given 3 months to object).
Section 67	Restrictions on Purchase by Company or Giving of Loans for Purchase of Its Shares	No public company shall give any loan or financial assistance to any person to buy its own shares (Exception: Loans to non-director employees up to 6 MONTHS’ salary/wages to purchase fully paid shares to be held by them by way of beneficial ownership!).
Section 71	Debentures & Debenture Redemption Reserve (DRR)	• A company may issue debentures with an option to convert into shares (by Special Resolution), NO company shall issue any debentures carrying ANY VOTING RIGHTS! • Max Tenure of Secured Debentures (Rule 18): Not exceeding 10 YEARS from date of issue (Up to 30 YEARS for Infrastructure Companies, Infrastructure Finance/Debt Fund NBFCs, and housing projects!). • Appointment of Debenture Trustee: Mandatory if prospectus/invitation is issued to more than 500 persons. • DRR (Rule 18(7)): All-India Financial Institutions, Banking Companies, and all Listed Companies (and NBFCs/HFCs) are EXEMPT from DRR; only Unlisted Non-NBFC/HFC Companies must maintain DRR at 10% of the value of outstanding debentures (and Listed/Unlisted public issues + unlisted private placements must invest 15% in specified liquid securities by 30th April for debentures maturing up to 31st March next year).

2. Section 68, 69 & 70: Buy-Back of Shares — Complete Numerical Conditions

Memorize every numerical condition of Section 68 (Power of Company to Purchase Its Own Securities — Buy-Back):

1. Three Permitted Sources of Buy-Back (Section 68(1)):
(i) Free Reserves, (ii) Securities Premium Account, OR (iii) Proceeds of the issue of any shares or other specified securities (Proviso: No buy-back of any kind of shares shall be made out of the proceeds of an earlier issue of the SAME kind of shares!).
Note (Section 69): Whenever buy-back is made out of Free Reserves or Securities Premium, a sum equal to the nominal value of shares bought back must be transferred to the Capital Redemption Reserve (CRR) Account!

2. Board Resolution Limit (10%) vs Special Resolution Limit (25%) (Section 68(2)):
• By Board Resolution Alone (at a Board Meeting): Up to 10% of the total Paid-up Equity Capital and Free Reserves.
• By Special Resolution in General Meeting: Up to 25% of the aggregate of Paid-up Capital and Free Reserves (and for Equity Shares in any single financial year, max 25% of its total Paid-up Equity Capital in that FY).

3. Post-Buy-Back Debt-Equity Ratio Cap (Section 68(2)(d)):
The ratio of the aggregate of Secured and Unsecured Debts owed by the company after buy-back shall NOT be more than TWICE (2 : 1) the Paid-up Capital and its Free Reserves! (Relaxed to 6 : 1 for Government Companies carrying on NBFC or Housing Finance activities).

4. Time Limits & Cooling-Off Periods (Section 68(4), (6), (7), (8)):
• Completion of Buy-Back: Within 1 YEAR (12 Months) from the date of passing the Special Resolution or Board Resolution.
• Extinguishment & Physical Destruction of Shares Bought Back (Sec 68(7)): Within 7 DAYS of the last date of completion of buy-back!
• Cooling-Off Between Two Buy-Back Offers (Proviso to Sec 68(2)): Minimum 1 YEAR (365 Days) must elapse from the date of closure of the preceding offer of buy-back to the next offer!
• Ban on Further Issue of SAME Kind of Shares After Buy-Back (Sec 68(8)): Company shall NOT make a further issue of the same kind of shares within a period of 6 MONTHS (Except by way of Bonus Issue, ESOP, Sweat Equity, or conversion of warrants/preference shares/debentures!).
• Return of Buy-Back (Sec 68(10)): Filed with RoC (and SEBI if listed) in Form SH-11 within 30 DAYS of completion of buy-back (Declaration of Solvency in Form SH-9 signed by at least 2 Directors, one of whom is the MD).

🎯 High-Yield Exam One-Liners (Last-Minute Revision Box)

Under Section 43 read with Rule 4 (amended 2019), shares with Differential Voting Rights (DVR) cannot exceed 74% of the total voting power at any point of time.
Under Section 47(2), where dividend on Preference Shares has remained unpaid for a period of 2 YEARS or more, preference shareholders acquire the right to vote on EVERY resolution placed before the company.
Under Section 48, variation of rights of any class of shares requires consent of 3/4th (75%) of holders of that class; dissenters holding at least 10% shares can apply to NCLT within 21 DAYS.
Under Section 52(2), the Securities Premium Account can be utilized ONLY for 5 statutory purposes (Bonus shares, Preliminary expenses write-off, Share/Debenture issue expense/discount write-off, Redemption premium, and Buy-back under Sec 68).
Under Section 53, issuing shares at a discount is VOID (except Sweat Equity under Sec 54, OR conversion of debt into shares for creditors under a statutory resolution/restructuring plan under Sec 53(2A)).
Under Section 55, the maximum tenure of Redeemable Preference Shares is 20 YEARS (extendable up to 30 YEARS for Infrastructure Projects, with 10% annual redemption from the 21st year).
Capital Redemption Reserve (CRR) created under Section 55 (Preference Share redemption) or Section 69 (Buy-back) can be used ONLY for issuing fully paid-up Bonus Shares!
Under Section 62(1)(a), a Rights Issue offer must remain open for a minimum of 15 DAYS and a maximum of 30 DAYS (reducible for private companies with 90% member consent).
Under Section 62(1)(b) read with Rule 12, there must be a minimum gap of 1 YEAR between the Grant of Options and the Vesting of Options under an ESOP.
Under Section 63, Bonus Shares can be issued ONLY out of Free Reserves, Securities Premium Account, or Capital Redemption Reserve (CRR); Revaluation Reserve can NEVER be used for Bonus Shares!
Under Section 67(3)(c), a public company may give loans to its employees (other than Directors or KMP) not exceeding 6 MONTHS’ salary or wages to enable them to purchase fully paid shares in the company.
Under Section 68(2), Buy-back up to 10% of Paid-up Equity Capital + Free Reserves can be authorized by a Board Resolution alone; up to 25% requires a Special Resolution.
Post-buy-back Debt-Equity Ratio (Secured + Unsecured Debt to Paid-up Capital + Free Reserves) under Section 68(2)(d) cannot exceed 2 : 1.
Every buy-back under Section 68(4) must be completed within 1 YEAR of passing the resolution, and bought-back shares must be physically destroyed within 7 DAYS of completion (Sec 68(7)).
After completing a buy-back, a company cannot make a further issue of the SAME kind of shares for 6 MONTHS (except Bonus, ESOP, Sweat Equity, or conversion of warrants/debentures) under Section 68(8).
Minimum gap between two consecutive Buy-Back offers is 1 YEAR from the closure of the preceding buy-back offer.
Under Section 71(2), NO company shall issue any Debentures carrying ANY voting rights under any circumstances!
Maximum tenure of Secured Debentures under Rule 18 is 10 YEARS (up to 30 YEARS for Infrastructure Companies and Infrastructure NBFCs).
Appointment of a Debenture Trustee under Section 71(5) is mandatory when a company issues a prospectus or invites more than 500 PERSONS to subscribe for its debentures.

📝 UPSC & Regulatory Level Practice MCQs (With Detailed Solutions)

Q1. Under Section 52(2) of the Companies Act, 2013, for which of the following purposes can the balance in the ‘Securities Premium Account’ NOT be utilized?

A. Issuing fully paid-up Bonus Shares to members of the company
B. Writing off the Preliminary Expenses of the company
C. Paying cash dividends to Equity Shareholders
D. Purchasing its own shares under Section 68 (Buy-Back of shares)

Correct Answer: (C) — Section 52(2) strictly restricts the application of the Securities Premium Account to 5 purposes: (a) issuing fully paid bonus shares, (b) writing off preliminary expenses, (c) writing off issue expenses/commission/discount on shares or debentures, (d) providing for premium on redemption of preference shares/debentures, and (e) buy-back of shares under Section 68. It can NEVER be used to pay cash dividends.

Q2. Consider the following statements regarding ‘Buy-Back of Shares’ under Section 68 of the Companies Act, 2013:
1. A Buy-Back of up to 10% of the total Paid-up Equity Capital and Free Reserves can be authorized by the Board of Directors by passing a resolution at a Board Meeting without requiring a Special Resolution.
2. After the completion of the buy-back, the ratio of aggregate secured and unsecured debts owed by the company shall not be more than twice (2 : 1) its paid-up capital and free reserves.
3. The company must extinguish and physically destroy the shares bought back within 30 days of completion of the buy-back.
Which of the statements given above are correct?

A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Correct Answer: (A) — Statements 1 and 2 are correct. Statement 3 is incorrect because under Section 68(7), every company must extinguish and physically destroy the shares or securities bought back within 7 DAYS (not 30 days) of the last date of completion of buy-back (whereas 30 days is the time limit to file the Return of Buy-Back in Form SH-11 under Sec 68(10)).

Q3. Under Section 63 of the Companies Act, 2013, which of the following reserves CANNOT be capitalized for issuing fully paid-up ‘Bonus Shares’ to members?

A. Free Reserves
B. Securities Premium Account
C. Capital Redemption Reserve (CRR) Account
D. Reserve created by the Revaluation of Fixed Assets

Correct Answer: (D) — Under Section 63(1) and Proviso, a company may issue fully paid-up bonus shares out of its (i) Free Reserves, (ii) Securities Premium Account, or (iii) Capital Redemption Reserve Account, provided that NO issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets.

Q4. Under Section 55 and Section 71 of the Companies Act, 2013 read with Rules, what is the normal maximum redemption tenure (for non-infrastructure companies) for ‘Redeemable Preference Shares’ and ‘Secured Debentures’ respectively, and what is the extended maximum tenure for ‘Infrastructure Projects’?

A. Preference Shares: 10 years; Debentures: 20 years; Infrastructure: 25 years
B. Preference Shares: 20 years; Secured Debentures: 10 years; Infrastructure (for both): up to 30 years
C. Preference Shares: 15 years; Secured Debentures: 15 years; Infrastructure: 20 years
D. Preference Shares: 20 years; Secured Debentures: 20 years; Infrastructure: 40 years

Correct Answer: (B) — Under Section 55, Redeemable Preference Shares have a normal maximum tenure of 20 years (30 years for infrastructure projects). Under Section 71 read with Rule 18, Secured Debentures have a normal maximum tenure of 10 years (30 years for infrastructure companies/projects).

Q5. Under Section 47(2) of the Companies Act, 2013, if the dividend in respect of a class of Preference Shares has NOT been paid for a period of how many years or more, such class of preference shareholders shall have a right to vote on EVERY resolution placed before the company?

A. 1 year or more
B. 2 years or more
C. 3 years or more
D. 5 years or more

Correct Answer: (B) — The Second Proviso to Section 47(2) states that where the dividend in respect of a class of preference shares has not been paid for a period of 2 years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

❓ Frequently Asked Questions (Exam FAQs)

Q: Can a company issue Debentures with Voting Rights under the Companies Act, 2013?

Never. Section 71(2) of the Companies Act, 2013 imposes an absolute statutory bar: ‘No company shall issue any debentures carrying any voting rights’ at any general meeting under any circumstances (though convertible debentures acquire voting rights only AFTER they are converted into equity shares).

Q: When is a company permitted to issue shares at a discount under the 2018 Amendment to Section 53?

While Section 53 generally prohibits issuing shares at a discount (except Sweat Equity under Section 54), Section 53(2A) allows a company to issue shares at a discount to its creditors when its debt is converted into shares pursuant to a statutory resolution plan (such as under the Insolvency and Bankruptcy Code, 2016) or a debt restructuring scheme in accordance with RBI guidelines.

Q: For what purpose can the Capital Redemption Reserve (CRR) be utilized?

Under Section 55(4) and Section 69(2) of the Companies Act, 2013, the Capital Redemption Reserve (CRR) account may be applied by the company for ONE purpose only: paying up unissued shares of the company to be issued to members of the company as fully paid Bonus Shares.

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