DEFINITION:

Share:

THE COMPANIES ORDINACE 1984 defines share as;

• “A share is a share in the share capital of a Company.”

• Boreland Trustees v/s Steel Bros. & Co. Ltd.:

“A share represents the interest of a share holder in the capital of the

Company & this interest is measured by the number of shares he is
holding & the amount paid by him to the Company on shares.”

• Thus, the amount of capital to be raised by a Company is always divided

into small parts or units of equal value & these units are called SHARES
 DEFINITION:
Share:

Right to receive a certain proportion of the profits

made by the company while the company is a going
concern and of the capital when it is wound up

It includes stocks. It is a movable property transferable

in a manner provided by the articles of the company
(S-89)
 DEFINITION:
Share:

• Share Capital of a company is collected by issue of

shares

• Share is one of the units into which total capital is

divided

• The person who owns the share is called share

holder
 CLASSES OF SHARES:
Most companies have only one class of shares and that
is ordinary shares.
It is increasingly common for even very small private
companies to have different share classes. This may be
done for various reasons such as to be able to vary the
dividends paid to different share holders and to create
non voting shares etc.

(Non voting shares carry no right to vote and usually no right to

attend general meeting either)
 CLASSES OF SHARES:
CLASSES OF SHARES

1. Ordinary Shares

2. Preference Shares

3. Redeemable Preference Shares

 CLASSES OF SHARES:
a) Ordinary shares:
• An ordinary shares represents equity ownership in a
company and entitles the owner to a vote in matters put
before share holders in proportion to their percentage
ownership in the company.
• Ordinary share holders are entitled to receive dividend if
any are available after dividends on preferred shared are
paid
So in simple words Ordinary shares have:
• Right to share in profits, if available
• Right to share in surplus assets on winding up and
• Voting rights.
 Cond…….
b) Preference shares:

• Company stock with dividends that are paid to

shareholders before common stock dividends are paid
out.
• Preference shares typically pay a fixed dividend, whereas
common shares do not.
• And unlike common shareholders, preference share
shareholders usually do not have voting rights.
• The main benefit to owning preference shares are that
the investor has a greater claim on the company's assets
than common stockholders.
 Cond…….
b) Preference shares:
• Preferred shareholders always receive their dividends
first and, in the event the company goes bankrupt,
preferred shareholders are paid off before common
stockholders

So in simple words preference shares

• Carry the right to a fixed dividend.
• have no voting rights.
• Dividend may either be cumulative or non-cumulative.
 Cond…….
b) Preference shares:

• Meaning Of Preference Shares

Preference shares are those, which enjoy the following two
preferential rights:

1. Dividend at a fixed rate or a fixed amount on these shares before

any dividend on equity shares.

2. Return of preference share capital before the return of equity

share capital at the time of winding up of the company.
 Cond…….
Differences b/w Ordinary and Preferences shares

• Ordinary shares are the most common kind of shares. An

ordinary share gives the holder voting rights in the
company and entitles the person to all dividend
distributions as a part-owner of the company.
• Preference shares allow holders to be paid dividends
before ordinary shareholders and they also have priority
over asset claims if the company goes bust. The downside
is that preference shareholders have a fixed dividend and
only limited voting rights with respect to company affairs.
 Cond…….
• The dividend on ordinary shares is uncertain and variable
(high when the company does well, poor or non-existent
when it does badly). Preference shareholders get a fixed
dividend which, if not paid, usually accrues until it can be.

• Each ordinary share usually carries a vote. Preference shares

do not usually carry a vote unless dividends fall into arrears.

• Preference shares may be issued with the right of conversion

into ordinary shares. These are called convertibles.
 Cumulative and non-cumulative
preference shares
With regard to the payment of dividend, preference shares
may be cumulative or non-cumulative
Cumulative preference shares:
• If the profits of the company in any years are not
sufficient to pay the fixed dividend, on the preference
shares the deficiency must be made up out of the
profits of subsequent years.
• The accumulated arrears of dividend must be paid
before anything is paid out of the profits to the holders
of any other class of shares.
 Cumulative and non-cumulative
preference shares
Non-cumulative preference shares
• The dividend is only payable out of the net profits of
each year.
• If there are no profits in any year, the arrears of
dividend cannot be claimed in the subsequent years.
• Preference shares are presumed to be cumulative
unless expressly described as non-cumulative. Any
ambiguous language in the articles will not be
enough to make them non-cumulative.
 Cond……..

c) Redeemable Preference Shares:

A preference share which must be bought back by the

company at an agreed date and for an agreed price
• Preference shares which are redeemable at
the option of the company.
 Cond……..

c) Redeemable Preference Shares:

– The company issues redeemable preference shares for a specific

time period.
– These shares are issued when the company has some growth and
expansion plans in mind.
– The shareholders can choose the time to maturity on these
shares.
– At the end of the stipulated period, they can choose to exchange
these shares for either equity shares of the company or for cash.
– The shareholders are repaid the face value of the shares plus the
dividends.
 Cond……..

Preferential Payments
– These shares are always given preferential treatment over
other classes of shares.
– They get priority in payments over common stockholders.
– These payments pertain to both quarterly dividend
payments, as well as the payments that are made when the
company is eventually liquidated. Then the assets are used
first to pay the creditors of the company and if money still
remains, the redeemable preference shareholders are paid.
– A majority of the time, redeemable preference shares are
favored over other classes of preference shares as well.