WHAT ARE THE KINDS AND CLASSES OF SHARES
Ques. WHAT IS THE MEANING OF SHARE??
Share is a unit in which capital of the company is divided. Each share has its nominal (face) value. Holders of these shares are called Shareholders or Members of the company.CLASSES OF SHARES:
1. Preference Shares, and
2. Equity Shares.
1. PREFERENCE SHARES [Section 43(b) of the Companies Act, 2013]
Preference Shares are the shares which carry the following two preferential rights
(i) Preferential right to receive dividend to be paid as fixed amount or an amount calculated al a fixed rate, which may either be free of or subject to income tax, before it is paid to Equity Shareholders and,
(ii) Right to receive repayment of capital on the winding up of the company before that of equity shares.
Classes Of Preference Shares:–
Preference Shares can be Broadly classified as follows:
• With Reference to Dividend
• With Reference to Participation in Surplus Profit
• With Reference to Convertibility; and
• With Reference to Redemption.
• With Reference to Dividend
(i) Cumulative Prefelence Shares are those Preference Shares which carry the right to receive arrears of dividend before dividend is paid to the Equity Shareholders.
For example, a company has 10,000, 7% Preference Shares of 100 each and dividend for the years ended 31st March, 2017 and 2018 has not been paid. The company shall pay rs. 2,10,000 as dividend for three years to the Preference Shareholders before dividend is paid to the Equity Shareholders.
(ii) Non Cumulative Preference Shares are those Preference Shares which do not carry the right to recive arrears of dividend.
In the above example, Preference Shareholders shall be entitled to receive dividend only for the year ended 31st March 2019, i.e., rs. 70,000 before dividend is paid to Equity Shareholders.
• With Reference To Participation In Surplus Profit
(i) Participating Preference Shares
The Articles of Association of a company may provide that after dividend has been paid to the Equity Shareholders, holders of Preference Shares will also have a right to participate in the remaining profit. The Preference Shares carrying this right are called Participating Preference Shares.
(ii) Non-Participating Preference Shares
Preference Shares which do not carry the right to participate in the profit remaining after Equity Shareholders have been paid dividend are Non-Participating Preference Shares.
• With Reference To Convertibility
(i) Convertible Preference Shares are those Preference Shares which carry a right to be converted into Equity Shares.
(ii) Non-Convertible Preference Shares
are those Preference Shares which do not carry a right to be converted into Equity Shares.
• With Reference To Redemption
(i) Redeemable Preference Shares are those Preference Shares which are redeemed by the company at the time specified (not exceeding 20 years from the date of issue) for their repayment or
earlier. The repayment of amount is termed as Redemption.
(ii) Irredeemable Preference Shares are those Preference Shares the amount of which can be returned by the company to the holders of such shares when the company is wound up.
NOTE: The Companies Act, 2013 does not permit issue of Irredeemable Preference Shares.
2. EQUITY SHARES [Section 43(1) of the Companies Act, 2013]
Equity Shares are those shares which are not Preference Shures Stating differently shares which do not enjoy preferential right of receiving dividend or repayment of capital are equity shares.
Equity Shares are the most commonly issued class of shares and carry the maximum 'risks and rewards' of the business: the risks being losing part or all of the value of shares if the business incurs losses; the rewards being payment of higher dividends and appreciation in the market value.
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