Types of Shares

Types of shares : Shares in the company may be similar i.
e they may carry the same rights and

liabilities and confer on their holders the same rights, liabilities and duties. There are two types
of shares under Indian Company Law :-
1.Equity shares means that part of the share capital of the company which are not preference
shares.
2.Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share
which is does not fulfill both these conditions is an equity share.
a. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e.
dividend payable is payable on fixed figure or percent and this dividend must paid before the
holders of the equity shares can be paid dividend.
b. It also carries preferential right in regard to payment of capital on winding up or otherwise. It

means the amount paid on preference share must be paid back to preference shareholders
before anything in paid to the equity shareholders. In other words, preference share capital has
priority both in repayment of dividend as well as capital.
Types of Preference Shares

1.Cumulative or Non-cumulative : A non-cumulative or simple preference shares gives right to
fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any
year because of absence of profit, the holders of preference shares get nothing nor can they
claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative
preference shares however give the right to the preference shareholders to demand the unpaid
dividend in any year during the subsequent year or years when the profits are available for
distribution . In this case dividends which are not paid in any year are accumulated and are paid
out when the profits are available.
2.Redeemable and Non- Redeemable : Redeemable Preference shares are preference shares
which have to be repaid by the company after the term of which for which the preference shares
have been issued. Irredeemable Preference shares means preference shares need not repaid by
the company except on winding up of the company. However, under the Indian Companies Act, a
company cannot issue irredeemable preference shares. In fact, a company limited by shares
cannot issue preference shares which are redeemable after more than 10 years from the date of
issue. In other words the maximum tenure of preference shares is 10 years. If a company is
unable to redeem any preference shares within the specified period, it may, with consent of the
Company Law Board, issue further redeemable preference shares equal to redeem the old
preference shares including dividend thereon. A company can issue the preference shares which
from the very beginning are redeemable on a fixed date or after certain period of time not
exceeding 10 years provided it comprises of following conditions :-
1. It must be authorised by the articles of association to make such an issue.
2. The shares will be only redeemable if they are fully paid up.
3. The shares may be redeemed out of profits of the company which otherwise would be
available for dividends or out of proceeds of new issue of shares made for the purpose of redeem
shares.
4. If there is premium payable on redemption it must have provided out of profits or out of
shares premium account before the shares are redeemed.
5. When shares are redeemed out of profits a sum equal to nominal amount of shares redeemed
is to be transferred out of profits to the capital redemption reserve account. This amount should
then be utilised for the purpose of redemption of redeemable preference shares. This reserve
can be used to issue of fully paid bonus shares to the members of the company.
3.Participating Preference Share or non-participating preference shares : Participating

Preference shares are entitled to a preferential dividend at a fixed rate with the right to
participate further in the profits either along with or after payment of certain rate of dividend on
equity shares. A non-participating share is one which does not such right to participate in the
profits of the company after the dividend and capital have been paid to the preference
shareholders.
Shares and shareholders

Types of shares
A company may have many different types of shares that come with different conditions and
rights.
There are four main types of shares:

Ordinary shares are standard shares with no special rights or restrictions. They have the
potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders
are the last to be paid if the company is wound up.
Preference shares typically carry a right that gives the holder preferential treatment when
annual dividends are distributed to shareholders. Shares in this category receive a fixed
dividend, which means that a shareholder would not benefit from an increase in the business'
profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the
business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or
nominal value of shares ahead of ordinary shareholders.
Cumulative preference shares give holders the right that, if a dividend cannot be paid one year,
it will be carried forward to successive years. Dividends on cumulative preference shares must
be paid, despite the earning levels of the business, provided the company has distributable
profits.
Redeemable shares come with an agreement that the company can buy them back at a future
date - this can be at a fixed date or at the choice of the business. A company cannot issue only
redeemable shares.

Types of Shares

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Types of shares : Shares in the company may be similar i.

e they may carry the same rights and

b. It also carries preferential right in regard to payment of capital on winding up or otherwise. It

Types of Preference Shares

1. It must be authorised by the articles of association to make such an issue.

3.Participating Preference Share or non-participating preference shares : Participating

Shares and shareholders

There are four main types of shares:

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