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Published by Aruna Chandraseker

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Published by: Aruna Chandraseker on Aug 29, 2012
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04/16/2013

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Ownership securities

The term Ownership securities is also known as capital which represent shares Shares are the most universal form of rising long terms fund from the market The capital of a company is divided into a number of equal parts known a shares
8/29/12

“A share is the share capital of a company and it includes stock expect where a distinction between stock and shares is expressed or implied” 8/29/12 .Definition for shares According to sec 2(46) of companies act 1956.

8/29/12 .

Equity shareholders get dividend after paying it to preference shareholders 8/29/12 • • • .1.Equity shares • Equity or Ordinary shares represent the ownership position in a company. The holders of ordinary shares called shareholders and are legal owners of the company. It is the permanent capital since has no maturity date.

Characteristic of equity shares 1. 6. 3. 5. 2. 4. Maturity Claims/right to income Claim to assert Right to control or voting rights Pre-emptive right Limited liability 8/29/12 .

In case of profits . equity shareholders 8/29/12 are the real gainers. . iv. iii. v. Equity shares do not create any obligation to pay a fixed rate of dividend It can be issued without creating any charges over the assets of the company It is a permanent source of capital Equity share holders are the real owners of the company who have the voting rights ii.Advantages i.

If only equity share are issued . the company cannot take the advantages of trading on equity. there is a danger of over capitalization Equity shareholders can put obstacles in management 2. During prosperous periods higher dividends have to be paid leading to increase in the value of shares in the 8/29/12 . 3. As equity capital cannot be redeemed .Disadvantages 1. 4.

Preference share • According to Sec 85(1). 1956. of the Companies Act.2. which carries the following two preferential rights: • The payment of dividend at fixed rate before 8/29/12 paying dividend to equity . a preference share is one.

Types of preference shares 8/29/12 .

Features • • • • • Maturity Claims on income Claims on assets Control Hybrid form of security 8/29/12 .

. 5. 3. 4.Advantages • Company’s point of view: No legal obligation Long term capital No liability of the company to redeem preference shares Redeemable preference shares have the advantage of repayment of capital Enhances the credit worthiness of the 8/29/12 company 1. 2.

.Advantages • Shareholder’s point of view: Earns a fixed rate of dividend Superior security over equity shares Provides preferential rights and repayment of capital at the time of liquidation 8/29/12 1. 2. 3.

3.Disadvantages • Company’s point of view: It is an expensive source of finance Cumulative preference shares become permanent burden Frequent delays or nonpayment of dividend adversely affect the creditworthiness of the firm 1. 8/29/12 . 2.

2. 3. 4. they live under the mercy of the management The rate of dividend is usually lower Preference shareholders do not have charge on assets of the firm The market price of preference shares fluctuates more 1.Disadvantages • Shareholder’s point of view: As they do not have voting rights. 8/29/12 .

Deferred shares • These shares were earlier issued to promoters or founders for services rendered to the company Hence deferred shares are also known as founders shares These shares rank last so far as payment of dividend and return of capital These share generally have small denomination According to companies act. 1956 no 8/29/12 public limited company or which is a • • • • .3.

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