MEANING OF SHARES AND TYPES OF SHARES

MEANING OF SHARES AND TYPES OF SHARES
meaning of shares. A share can be defined as the individual portion of the company’s capital owned by shareholders has in a company.

In other words, share is a unit of capital measured by a sum of money.

The Company Act defines a share as: “the interest in a company’s share capital of a member who is entitled to share in the income of such company”

Types of shares

There are two major types of shares. These are Preference shares and Ordinary shares


Preference shares:

A preference share is the type of share which has priority in terms of dividend payment and repayment of capital in the event of winding up. They have a fixed rate of dividends.

Features of preference shares

Preference shares have no voting rights
They have fixed rates of interest
Holders receive dividends before others
They are entitled to return of capital first at winding up

Types of preference shares

Cumulative preference shares: Cumulative preference shares have priority in the share of dividends over others.

Cumulative preference shares receives arrears of dividends not paid before other shares, i.e. when no profit is declared, their dividends will be carried forward to the following year.

Features of cumulative preference shares

No voting rights
It has a fixed rate of dividend
They receive arrears of dividend

Participating preference shares:

Participating preference shares are shares which are entitled to furthers percentage of dividends after the ordinary shares have received a specified percentage of profits.

Participating preference shares have the right to participate equally with the ordinary shareholders in surplus dividends apart from their fixed dividends

Features of participating preference shares

They receive fixed rated of dividends like other preference shares
They also participating in further dividends after all others have been paid
They usually receive dividends before ordinary shares

Redeemable preference shares:

Redeemable preference shares are shares which have prior claims to dividends before all other preference shares.

The owners of the business can buy back these shares after some time.

The shares are issued to finance a particular project.

The redemption of preference shares must not be regarded as amounting to reduction of capital

Features of redeemable preference shares

they have prior claims before other preference shares
they can be bought back
they are issued out to finance a particular project

Non-cumulative preference shares:

In this type of share, the dividend does not accumulate from one year to another.

Where a company fails to pay dividend in a particular year, it cannot be carried forward

Non-participating preference shares:

Non- participating preference shares are the opposite of participating shares.

They are entitled to further dividends after the ordinary shares have been paid

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Ordinary shares:

Ordinary shares are also known as equities.

The ordinary shareholders are the real owners of the business.

The holders are the risk bearers and they receive their dividends after all other shares have been paid.

They can vote and be voted for. They have no fixed rate of dividends

Features of ordinary shares

There is no fixed rate of dividend
They have voting rights
The holders are real owners of the business
They are the risks bearers.
They receive dividends last, after others have been paid.

Types of ordinary shares

Deferred or founders’ shares:

Deferred shares are shares which are entitled to the remainder of profit after all other shares (preference and ordinary) have been paid.

They are usually issued to the founders or promotes of the business.

Features of deferred shares

They have more voting rights
They are issued to the founders of the business
The holders are entitled to the remainder of the dividends after all others have been paid

Preferred ordinary shares:
Preferred ordinary shares are shares which receive dividend after the preference shares have been paid. They have preference over other classes of ordinary shares