Maintaining a company’s shareholding structure allows management to diversify ownership while not allowing a group to control or have exclusive decision power. It is kept after the firm is acquired and the shares are issued to the Promoters of the company, and it is updated when fresh shares are issued. This might be accomplished by documenting the names of the shareholders who subscribed to the company’s share issuance and their holdings. Following this, the proportion of capital held by each shareholder is computed, as is the percentage of voting rights accessible to shareholders, which is also reviewed and noted.
- Shareholder Structure records the classes of shares issued by the company, the number of shares, and the percentage of shareholding of each shareholder at any given time, as well as the voting rights available to shareholders with the shares held by them, which assists management in evaluating the company’s ownership.
- The optimal capital structure is defined as the optimal combination of debt and equity financing that maximizes a company’s market value while lowering its cost of capital.
- The following criteria are crucial in defining the capital structure: Costs of Capital: It is the expense of raising funds from various sources of funding.
What is the Ownership Structure of the Company?
The ownership structure of a corporation reveals who owns that specific business. Who acquire and sell shares can be managed by those with private limited structures. Public investors may purchase and sell shares of companies with public ownership on the open market.
The ownership arrangement may affect the choices that businesses make. Companies with less concentrated ownership can offer minority shareholders more power, whereas those with more concentrated ownership have strong control over decision-making.
Company’s Shareholder Structure
While preparing the company’s Shareholder Structure, a list of possible shareholders who will possess common shares after the dilution or conversion of their convertible securities might be specified.
Shareholder Structure records:
- the classes of shares issued by the company,
- the number of shares and
- the percentage of shareholding of each shareholder at any given time,
as well as the voting rights available to shareholders with the shares held by them, which assists management in evaluating the company’s ownership.
The Shareholders Structure Report categorizes the various classes of shares issued by the company, such as
- common / equity shares,
- preference shares,
- convertible shares,
- ESOP, and so on.
Preference shares can also be of two types,
- preference shares without voting rights or
- preference shares with restricted voting rights.
Following the classification of the various shares issued, Share Structure keeps records of shareholders with the number and percentage of shares owned after the reporting period. However, the proportion of shareholdings only reveals the company’s owner and does not identify the shareholders’ overall decision-making power, which may only be supplied after stating the voting rights accessible to the shareholders.
It also aids management throughout the company’s collapse. It offers the company’s owner as well as the shareholders rights to the company’s profit or worth. After paying off creditors and preferred creditors, the residual proceeds from the company’s assets are to be distributed among the company’s shareholders in accordance with their rights.
Shareholding patterns demonstrate how businesses are owned by their shareholders. It demonstrates, for instance, the extent to which various financiers have purchased shares in the company. In addition to this, it displays the proportion of shareholding held by the various categories of investors.
The Shareholding pattern represents how the company’s shares are dispersed across the various entities that make up the business.
A company’s shareholding pattern can be broken down into two primary categories:
1) Promoter and promoter’s group – These people are the business’s proprietors. They hold the majority of the positions on the executive committee and board of directors. The promoter’s group consists of the family members of the proprietors who own shares in that business.
2) Public shareholdings – They are made up of institutional shareholdings or financial organizations like insurance firms, mutual funds, and financial institutions. A significant portion of this allocation is made up of FIIs (Foreign Institutional Investments) and FDIs (Foreign Direct Investments).
Rights of Shareholders
1) Access to financial records
As a business owner/shareholder, you have the right to review your company’s books and records to determine how well it is functioning.
This privilege is granted by the corporation by submitting:
- audited financial statements,
- financial reports, or
- directors’ reports.
As a shareholder, you are also entitled to free access to the company’s share registry.
2) Right to sue for wrongdoing
You have the legal right to sue directors, officers, and executives for wrongdoing. It is vital to highlight that ASIC does not become involved in proprietary company issues.
3) The right to vote on major topics
Your voting rights allow you to influence company decisions.
Shareholders have the opportunity to vote on the following issues:
- Appoint corporate directors by an ordinary resolution voted at shareholder meetings.
- Remove current directors from the board of directors.
- Make suggestions for the firm.
- Vote in favor of structural changes like mergers and acquisitions or liquidation.
4) Participating in the AGM / Annual General Meeting
- The Annual General Meeting (AGM) is a yearly gathering of a company’s shareholders.
- The directors of your firm will present you with the company’s annual report and will remark on the company’s performance during the fiscal year during these shareholder meetings.
- During the AGM, shareholders have the opportunity to elect new directors to the board of directors, discuss director remuneration, and raise concerns about the company’s future.
- Members of the corporation can vote by show of hands or via poll.
5) The ability to transfer ownership
Shareholders of publicly traded corporations can swap their interests or shares on the Stock Exchange. The liquidity of a share is significant because it allows shareholders to readily sell their shares.
6) Participate in corporate activities and profit sharing
You have the right to receive:
- share buybacks,
- share issuance, and
- share mergers as a shareholder.
As a shareholder, you are not liable for the company’s legal duties because it is a separate legal entity.
As a result, the assets of a firm are not its shareholders. Furthermore, you have no rights other than your position in the corporation.
Shareholders are not normally liable for the company’s debt. However, as a shareholder, you are obligated to pay the corporation for any sum unpaid on your shares.
When a corporation is liquidated, creditors are paid first, then bondholders, and last ordinary shareholders.
As a shareholder, you may have extra responsibilities that are defined in your company’s shareholders agreement or constitution. Furthermore, as a corporate director and shareholder, you will have a greater number of responsibilities. Directors have more legal responsibilities than stockholders.
Transfer of Shares and Shareholding Changes
The shareholders are the owners of a business limited by shares who have broad influence over the firm, such as:
- the appointment and removal of Directors,
- permission for bringing in extra capital, and
- approval of related party transactions, among other things.
Transferring ownership of a firm can therefore be accomplished by transferring shares owned by one member to another. When opposed to a Public Limited Company, share transfer in a Private Limited Company is generally more limited.
Transferring ownership of a firm / a company can therefore be accomplished by transferring shares owned by one member to another. When opposed to a Public Limited Company, share transfer in a Private Limited Company is generally more limited. In the case of a Private Limited Company, the shares are closely owned by a limited number of people, such as family members or friends. As a result, most Private Limited Company Articles of Association limit a shareholder’s power to transfer the company’s shares to an outsider.
What is the Procedure for Transferring a Company Share?
Step 1: Complete and sign Form SH-4, Share Transfer Form.
Step 2: Attach the share transfer to the form SH-4 and pay the stamp duty. Stamps equal to 0.25% of the entire consideration amount in the share transfer
Step 3: Deliver the SH-4 to the Company’s registered office.
Step 4: Adopt the Board Resolution authorizing the share transfer.
Step 5: Make the relevant entries in the Members’ Register and the Share Transfer Register.
Step 6: Make the required endorsements on the reverse of the share certificate and pass it over to the transferee.
The complete private limited company registration procedure will take at least 2 to 4 working days.
What Documentation is Necessary for a Share Transfer?
1) Both the transferee’s and the transferor’s income tax PAN
2) Color passport-size photograph, both the transferee and the transferor shall provide the photograph.
3) Any of the below:
- Aadhaar Card
- Electricity Bill
- Driving License.
4) Both the transferee’s and the transferor’s voter identification cards
5) Transferor’s original share certificates.
What are the Possible Grounds for a Share Transfer?
- Control over the Company’s affairs is being diluted.
- According to the management agreement, if put upon by the Company’s members
- To divide the complete shares in favor of any individual as a commercial transaction.
- Capital structure and share capital requirements
Capital is the most important aspect of launching a business. It serves as the company’s basis. The two basic forms of financial sources for a firm are debt and equity. The capital structure of a corporation is described as the combination of stock and debt used to finance the firm’s overall operations and growth.
Capital Structure Types
Capital structure is defined as the structuring of capital via the use of various long-term finances, which are divided into two categories: equity and debt.
- Preference shares,
- equity shares,
- retained earnings,
- long-term loans, and
other forms of capital are raised by a company.
These monies are generated to help manage the business.
- Equity Investment
The money owned by the shareholders or owners is referred to as equity capital. It is divided into two categories.
- Retained Earnings:
Retained earnings are a portion of the profit that the organization has set aside to assist build the firm.
- Contributed Capital:
Contributed capital is the amount of money that the firm’s owners invested when the company was founded or received from shareholders as payment for ownership of the company.
- Debt financing
Debt capital is defined as borrowed money used for commercial purposes. There are several types of debt capital.
- Long-Term Bonds:
These bonds are regarded as the safest of debts since they have a long payback duration and just interest must be paid while the principal is paid at maturity.
- Short-Term Commercial Paper:
This is a sort of short-term financial instrument used by businesses to raise funds for a limited time.
- The Best Capital Structure
The optimal capital structure is defined as the optimal combination of debt and equity financing that maximizes a company’s market value while lowering its cost of capital.
Capital structure varies by industry. A high debt ratio is not appropriate for a firm involved in mining or petroleum and oil production, however certain industries, such as insurance or banking, have a large level of debt as part of their capital structure.
- Financial Hedging / Leveraging
Financial leverage is defined as the percentage of debt that is part of the firm’s total capital. It is sometimes referred to as capital gearing. A business with a high debt ratio is known as a highly levered firm, whereas a firm with a low debt ratio is known as a low levered firm.
Factors Influencing Capital Structure
The following criteria are crucial in defining the capital structure:
- Costs of Capital:
It is the expense of raising funds from various sources of funding. A corporate or business should earn enough income to cover the cost of capital and fund expansion.
- Degree of Control:
Equity shareholders have greater rights in a firm than preference or debenture shareholders. The type of shareholders and the limits on their voting rights will establish a company’s capital structure.
- Equity Trading:
For a company that borrows fresh cash to boost returns by using more equity as a source of funding. When the rate of return on total capital exceeds the rate of interest paid on debentures or the rate of interest on additional debt acquired, equity trading is said to occur.
- Policies of the Government:
The capital structure is also influenced by the government’s regulations and policies. Changes in monetary and fiscal policy cause changes in capital structure decisions.
The shareholder structure helps management trace firm ownership and decision-making power. The structure can be dual-class or multi-class, which helps management and promoters retain decision power so they can focus on the company’s vision and prospects without being distracted by shareholders’ decisions. Shareholder structure determines obligations and stakeholder rights during liquidation.
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