Shares define extent of ownership in a company. They are equal parts into which a company’s shareholding is divided, entitling the holder to the proportion of the profits.
It is also described as units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.
Shares come in diverse types.
Ordinary shares, also known as common stock, are shares that entitle the shareholder to share in the earnings of the company as and when they occur, and to vote at the company’s annual general meetings and other official meetings. They come with no special rights or restrictions.
Ordinary shares have the potential to give the highest financial gains, but also have the highest risk.
Ordinary shareholders are entitled to voting rights. However, they are the last to be paid in the event that the company is wound up.
Holders of preference shares receive a fixed dividend. They do not benefit from an increase in the profits of the business. However, holders of this class of shares have priority rights to their dividends ahead of ordinary shareholders.
In addition, holders of preference shares may not have any right to exercise voting rights.
CUMULATIVE PREFERENCE SHARES
If dividends cannot be paid in a given year to holders of this class of shares, 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 profits that can be distributed.
Redeemable shares are shares allotted with an agreement that the company can buy back such shares at a future date – this can be at a fixed date or at a later date chosen by the company.
By law, a company cannot solely issue redeemable shares; the company must be able to prove that it has also issued non-redeemable shares.
These are shares on which no dividend is payable until other classes of shares have received a minimum dividend.
This blog highlights the different TYPES of shares available to an intending shareholder.
Intending shareholders might also want some assurances on whether they can sell or transfer their shares.
Like any other type of property, shareholders are at liberty to deal with their shares as they might desire.
In sum, many individuals engage the professional services of stock brokers, capital market lawyers, and finance experts to guide them through the process of acquisition of shares.
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