This fixed amount of each share, ie, its denomination, represents the par value of a share. Secondly, this requires that the denomination of each share or the fixed amount must be stated in the memorandum in a monetary form. The Companies Act thus gives liberty to companies to fix the denomination of their shares. However, as per guidelines contained in a circular of 1983 issued by the Union government, the only denomination in which shares could be issued by a company was limited to Rs 10 or Rs 100. The Securities & Exchange Board of India (Sebi) has now modified these guidelines on June 11, 1999, imparting flexibility to firms to fix any denomination of the par value of its equity shares. This means that the companies are now free to issue shares of any denomination,eg, Rs 2 or Rs 5,000. The only restriction as per the new Sebi guidelines now is that the denomination of shares cannot be less than Re 1 and that thereafter in multiples of Re 1. Moreover, at any given time there shall be only one denomination for all the shares of a company.

Even existing firms, which have issued shares at Rs 10 and Rs 100, may change the denomination of their shares into any other denomination by splitting or consolidating existing shares after suitably amending their memorandum and articles of association. However, these fresh Sebi guidelines will be applicable to only those companies whose shares are dematerialised.Investors can now expect several companies splitting their existing shares into shares of smaller denominations. To begin the trend, Wipro had announced recently that it was splitting its existing shares of Rs 10 each into five shares of Rs 2 each. Likewise, most recently on June 12, 1999, it was announced in the AGM of Infosys Technologies that the company may considersplitting of its shares. More companies may follow. At the same time, there may be some companies which may try to consolidate their shares of smaller denomination into shares of bigger denomination.

What are the consequences of such change of denomination of shares? It is said that splitting of shares may make them more affordable to investors and thereby increase liquidity in the stock market as even smaller investor would be able to invest in shares whose prices are affordable. However, the argument that the splitting of shares will make the shares more affordable to smaller investors is only partially true. This is so because the advantage of share splitting can be taken only by those companies whose shares are dematerialised, in the case of which the investors have already got the advantage of being able to purchase even a single demat share, there being no concept of a minimum market lot in demat shares. So while the volume in number of shares traded may go up, the value of the traded shares mayremain almost the same. It would therefore appear that splitting of shares may not have much impact on the liquidity. Secondly, as far as a shareholder is concerned, the amount of his net holding in the company may not change much even after the change in denomination of the shares. A shareholder is thus not affected much by such a change in denomination. Yes, of course, the more number of shares of a company for the same total amount may increase the custody charges and the transaction charges levied by the depository, ie, the NSDL and its depository participants since such charges are levied on the basis of the number of shares and not the amount of shares. This may, to some extent, affect big investors having a large number of transactions.

Some companies which earlier used to issue bonus shares to bring down market prices of shares to make them affordable to smaller investors may now resort to splitting of shares into smaller denominations to achieve the same goal. A bonus issue also means enlargementof equity capital which may require more dividends to be paid in future if the same dividend percentage is to be maintained. Obviously, share split scores over the bonus issue if the purpose is to bring down the share prices.

At the same time, it should be borne in mind that while it may be true in some cases that bonus shares are issued by companies to bring down the stock prices, in several other cases bonus shares are issued by companies to distribute profits to the shareholders. Splitting of shares cannot be an alternative to the issue of bonus shares where it is intended to pass on the profits of the company to the shareholders.

There is a feeling in the market that these new Sebi guidelines will benefit certain companies, whose shares are currently traded at less than the par values, enabling them to raise fresh capital from the market at lower face values than Rs 10. This may not be true. As per the true interpretation of sub-section 13(4) of the Companies Act mentioned above, re-affirmed by Sebiin these new guidelines, all shares of a company can be only of one denomination at any given time. Thus, if a company, whose shares are being traded at below the par value, desires to raise fresh funds from the market at a low face value, it will have to first change the denomination of its existing shares to such low face value. Moreover, such a fresh issue of shares at a lower face value will also be subject to adequate disclosures norms of Sebi which essentially covers the previous track record of the management, financial performance, share price movements, etc., thereby exposing the claims of the company. It needs to be clarified that Sebi's grant of freedom to companies to freely fix the denomination of their shares has to be differentiated from the complete freedom of freely pricing their shares as it exists in many of the states in the USA. The system of a fixed par value (or the face value) of shares still remains. What the Sebi has permitted is that each company can decide its own par value of itsshares. Had the concept of par value or face value of shares been completely abolished by Sebi, there would have been no need for charging share premium, as in that case the shares could have been freely priced without there being any face value. In any case, Sebi's new guidelines give at least some more freedom to the companies in this matter and may be some psychological advantage. Whether or not the new guidelines will have any positive impact on the capital market is a matter of debate, but it will certainly have at least one disadvantage for the investors. Now, while analysing the market prices of shares, the investors will also have to take into consideration as to what is the face value of such shares.

Thus, the investors will have more to do with numbers now.