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Types Of Shares The shares which are issued by companies are of two types Equity Shares Preference Shares

Equity Shares
Equity Shares are issued and are traded everyday in the stock market. The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company. The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting. Every member of a company limited by shares and holding any equity shares therein shall have a right to vote, on every resolution placed before the company; and his voting right on a pool shall be in proportion to his share of the paid-up equity capital of the company

Preference Shares
These are other type of shares. The preference shares are market instrument issued by the companies to raise the capital. Preference shares have the characteristics of both equity shares and debentures. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders. Every member of a company holding any preference shares have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares. Explanation : Any resolution for winding up the company or for the repayment or reduction of its share capital shall be deemed directly to affect the rights attached to preference shares within the meaning of this clause. (b) Subject as aforesaid, every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, be entitled to vote on every resolution placed before the company at any meeting, if the dividend due on such capital or any part of such dividend has remained unpaid -

Types of Preference Shares

Preference shares are divided into; Cumulative & Non cumulative shares Redeemable & Non-redeemable Convertible & Non-convertible shares Participating and non-participating
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Cumulative & Non cumulative shares

Suppose a company does not make any profits for two successive years and makes huge profits in the third year. Then the people who have cumulative shares will get the interest of the three years and in case of non-cumulative share holders they do not receive the interest of past two years. If AOA contains clause that pref sh would be apid 15 % dic on nominal value of share. At the end of year co did not make any profit & thus no div was paid. & next year substantial profit is made. Would the pref share be paid only 15% for year or in addition accumulate the div which was not paid last year. Law leaves it free for the companies to decide. A pref share which carries the right to div in arrears is called cumulative pref share. & vice versa. A pref share is presumed to be cumulative unless expressly specified.

Redeemable & Non-redeemable

The redeemable shares are redeemed within the life time of the company or before the company closes down or to say that these shares have a maturity period. In case of nonredeemable shares they mature only upon closing down of the company.

Convertible & Non-convertible shares

Classes of shares which can be converted to other forms of shares or securities are called as convertible shares. Whether they are converted to equity shares, debentures depend on the rules laid down by the company. If the shares are not convertible to any other security on their maturity period are called as non-convertible shares.

Participating and non-participating

A company goes bankrupt and is dissolved. Now its assets are sold and liabilities are paid up. First debenture holders are paid then preference share holders and at last the equity share holders. After paying up each one of them still there is some surplus amount left now if the investors have participating preference shares then the surplus amount left will be distributed equally between equity share holders and participating share holders. These are very less preferred in the market because the investor is looking out for long term investment and good returns. E.g. If AOA of company contains clause that pref. shares will be paid a div of 15% of the nominal value. & if at the end of year equity share was given 35% div on face value. The explanation in s/c 85 makes it possible to provide for additional div to a pref.
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share from profits. As the pref. share gets to participate in the further distribution of div such a share is called participating share. & if there is no provision for any additional div is called nonparticipating share. Unless it is expressly provided a pref. share is taken to be non participative.

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