Companies Act, 1956
Sec 85 - Two kinds of share capital
(1) " Preference share capital " means, with reference to any company limited by shares, whether formed before or after the commencement of this Act, that part of the share capital of the company which fulfils both the following requirements, namely :
(a) that as respects dividends it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate, which may be either free of or subject to income-tax ; and
(b) that as respect capital, it carries or will carry, on a winding up or repayment of capital, a preferential right to be repaid the amount of the capital paid-up or deemed to have been paid up, whether or not there is a preferential right to the payment of either or both of the following amounts, namely :
(i) any money remaining unpaid, in respect of the amounts specified in clause (a), up to the date of the winding up or repayment of capital ; and
(ii) any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company.
Explanation. : Capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or both of the following rights, namely :
(i) that, as respects dividends, in addition to the preferential right to the amount specified in clause (a), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid ;
(ii) that, as respects capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified in clause (b), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right in any surplus which may remain after the entire capital has been repaid.
(2) " Equity share capital " means, with reference to any such company, all share capital which is not preference share capital.
(3) The expression " preference share " and " equity share " shall be construed accordingly.