Company Law, often referred to as corporate law, is the branch of legal study and practice that governs the formation, operation, and dissolution of companies. It sets out the rules and regulations that dictate how businesses are created, administered, and held accountable. The primary aim of Company Law is to balance the interests of various stakeholders—shareholders, directors, creditors, regulators, and employees—while ensuring transparency, fairness, and lawful conduct in corporate activities.

In India, the Companies Act, 2013, is the principal legislation that governs all aspects of company regulation, including incorporation, management, corporate finance, and liquidation. It aligns Indian corporate governance with global standards while ensuring legal safeguards for investors and the general public.

Importance of Capital Structuring in Companies

Capital structuring is the financial backbone of any company. It refers to the mix of equity and debt instruments a company uses to finance its operations and long-term growth. Proper structuring is not only critical for maintaining financial health, but it also affects the company's ability to raise funds, distribute profits, manage risk, and ensure investor confidence. A well-structured capital base:

• Enhances the creditworthiness of a company.
• Reduces the cost of capital.
• Ensures regulatory compliance.
• Attracts potential investors and lenders.
• Supports strategic decisions like mergers, acquisitions, or public offerings.

Mismanagement of capital structure can lead to legal complications, excessive financial risk, or even insolvency.
 

Overview: Share Capital vs. Debentures

In corporate finance, companies can raise funds either by issuing share capital or by borrowing through debentures.

These two instruments serve distinct legal and financial roles:

• Share Capital represents ownership in the company. Shareholders are part-owners and are entitled to dividends and voting rights. Equity investment is inherently risky, but it may offer higher returns.
• Debentures, on the other hand, are debt instruments. They do not confer ownership but are a form of long-term borrowing. Debenture holders receive a fixed rate of interest and are prioritized over shareholders in case of liquidation.
   

Definition under the Companies Act, 2013

Share capital refers to the amount of money raised by a company through the issue of shares. It represents the ownership interest held by shareholders in the company. According to Section 2(84) of the Companies Act, 2013, a "share" means a share in the share capital of a company and includes stock. It forms the core of a company's financial structure, determining shareholder rights, dividend entitlement, and voting power. The capital raised through shares is used by the company to fund operations, growth, and investments.
 

Types of Share Capital

Under the Companies Act, the two primary types of share capital are:

1. Equity Share Capital:
   Equity shares represent ownership with voting rights. Holders of equity shares:
   • Have residual claims on income and assets (after liabilities are settled),
   • Can vote on key decisions at general meetings,
   • May receive dividends, though not guaranteed.