Types of shares

 What are shares? what are types of shares and their important features are discussed in this blog?

types of shares


Table of content

Meaning of shares

  • A share is the smallest unit into which the share capital of a company is divided
  • Total capital of the company is divided into several small individual units of a fixed amount and each such unit is called a share.
  • The liability of a holder of shares (called shareholder) is limited to the issue price of shares acquired by him.
  • Until the company goes into liquidation, the company shall not be entitled to return the money obtained from the shareholder by subscribing the shares as the amount so invested by the shareholder in the company is the property of the company itself.
  • There are various rights of shareholders such as the appointment of director, attending and voting in Annual general meeting (AGM).             

Types of shares

Generally, there are two types of shares which are mentioned below:

1. ordinary shares
  • Equity shares are the ordinary shares of the company representing the part ownership of the shareholder in the company. 
  • The dividend is paid after the payment of all liabilities.
  • In the event of the winding-up of the company, equity shares are repaid at the end.
  • The rate of dividend is fluctuating in nature. In another word, it doesn't remain the same every year.
  • Equity share/ ordinary shares carry voting rights.
  • Equity shares can never be converted.
  • ordinary shares can not be redeemed.
Importance features of ordinary shares:
  • Availability of voting rights
  • no fixed dividend
  • no priority in the distribution of surplus assets.

2. Preference shares
  • preference shares are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital.
  • In the case of payment of dividend, the dividend is paid to the preference shareholder before ordinary shares.
  • In the event of winding up/ liquidation of the company, preference shares are repaid before equity shares.
  • Rate of dividend is fixed.
  • Normally preference shares are redeemed after a certain period.
  • Normally, preference shares do not carry voting rights. However, in special circumstances, they may get voting rights.
  • preference shares can be converted into equity shares.
Important features of preference shares
  • preferential right to dividend declared by the company
  • preferential rights to repayment of capital in case of liquidation of the company


Types of preference shares

1. Redeemable preference share
That share that can be redeemed after a certain period is called redeemable preference shares.

2. Irredeemable preference shares
That share that cannot be redeemed after a certain period is called Irredeemable shares.

3. cumulative preference shares
Those shares in which dividend get cumulated every year is called cumulative preference share.
whether the company bears the loss or earns a profit, the dividend is mandatory to be paid to its shareholders.

4. non-cumulative preference shares
Those shares in which profits are distributed or dividend is paid only in a year wherein profit is made by the company.

5. convertible preference share 
Those shares which it can be converted into ordinary shares are called convertible preference shares.

6. non-convertible preference shares
Those shares which it cannot be converted into ordinary shares are called non-convertible preference shares.

If there is any doubt in your mind, feel free to comment below.


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