Shares can be described as the company’s financial instrument for raising funds from the general public. A portion of the share is owned by a body. A share is therefore the smallest unit of the overall net value of the company.
The capital is divided into very small units in a joint-stock company, i.e. $ 5,00,000 and Rs 50,000 units of every $10 respectively. Thus, it is called Share in each unit or fraction. The company’s shares are distinguished by their unique numbers.
The shareholders are known as shareholders, the real shareholders of the company. Therefore, the shareholder’s ownership is based on its company holdings. The return on the shareholder’s investment is called a dividend.
Kinds of Shares:
There are two kinds of Shares:
Equity Shares:
Equity Shares are the shares that carry – or are otherwise referred to as ordinary shares-
Rights to vote at the company’s Annual General Meeting. Or
The dividend-related voting rights, vote etc.
Common shareholders share the company’s profits by means of a dividend and bonus shares. After all taxes, interest and dividends have been paid to preference shareholders, the dividend is paid to them.
The dividend rate shall not be fixed; i.e., whatever the company earns a profit, the shareholders shall have a certain percentage declared a dividend by the company.
Once again, equity shareholders, i. e. after paying creditor, debenture and preference shareholders’ claims, shall finally be paid upon closing down of the corporation.
Funds collected through issued shares provide the company with permanent capital. The shareholders are considered the real owners of the company, as they take the highest risk. These shares are generally expensive, given that the shareholders expect a good investment return against the taken risk.
Equity shares are of various kinds, e.g. right shares, bonus shares, etc.
Preference Shares:
Prime shares are shares that bear the privileges in relation to the payment of dividends (i.e., either a certain amount or at some rate) and the reimbursement at the time of the termination of the company.
It is a hybrid financing source that contains the characteristics of equity and debt capital. The equity capital is identical because it has a dividend not tax-deductible but at the same time has a dividend rate that is similar to debt capital, where the interest rate is safe.
The shareholdings are preferred to the shareholdings when the company is closed in on the distribution of dividends and excess. These shares are redeemable in nature, i.e. these shares are reimbursed by the company at par, premium or discount after a certain period of time.
There are various types of preferences shares such as:
- Convertible preference shares
- Cumulative preference shares
- Non-cumulative preference shares
- Redeemable preference shares
- Participating preference shares
- Non-participating preference shares
Preference shares are generally cumulative as if the dividend was not paid for one year as a result of loss, and are reported for the following year. The prime shareholders have the right to vote in the AGM if it continues in a row for two years.
The shareholders’ liability is limited to the nominal value of the shares, in which the nominal value is the denominated value. In addition, the shares can be moved in the manner specified in the Articles of Association of the company in which they can be transferred.
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