Types of Shares
DEFINITION:
According to the section 2(46) of the Company’s Act 1956, share means a part in the share capital of the company and it also includes stock except where a distinction between stock and share capital is made expressed or implied.
TYPES OF SHARES:
As per the provision of section 85 of the Companies Act, 1956, the share capital of a company consists of two classes of shares, namely:
1. Preference Shares
2. Equity Shares
PREFERENCE SHARES:
According to Sec 85(1), of the Companies Act, 1956, a preference share is one, which carries the following two preferential rights:
(a) The payment of dividend at fixed rate before paying dividend to equity shareholders.
(b) The return of capital at the time of winding up of the company, before the payment to the equity shareholder.
Both the rights must exist to make any share a preference share and should be clearly mentioned in the Articles of Association.
Preference shareholders do not have any voting rights, but in the following conditions they can enjoy the voting rights:
(1) In case of cumulative preference shares, if dividend is outstanding for more than two years.
(2) In case of non-cumulative preference shares, if dividend is outstanding for more than three years.
(3) On any resolution of winding up.
(4) On any resolution of capital reduction.
TYPES OF PREFERENCE SHARES:
In addition to the aforesaid two rights, a preference shares may carry some other rights. On the basis of additional rights, preference shares can be classified as follows:
CUMULATIVE PREFERENCE SHARES: Cumulative preference shares are those shares on which the amount of divided if not paid in any year, due to loss or inadequate profits, then such unpaid divided will accumulate and will be paid in the subsequent years before any divided is paid to the equity share holders. Preference shares are always deemed to be cumulative unless any express provision is mentioned in the Articles.
NON-CUMULATIVE
According to the section 2(46) of the Company’s Act 1956, share means a part in the share capital of the company and it also includes stock except where a distinction between stock and share capital is made expressed or implied.
TYPES OF SHARES:
As per the provision of section 85 of the Companies Act, 1956, the share capital of a company consists of two classes of shares, namely:
1. Preference Shares
2. Equity Shares
PREFERENCE SHARES:
According to Sec 85(1), of the Companies Act, 1956, a preference share is one, which carries the following two preferential rights:
(a) The payment of dividend at fixed rate before paying dividend to equity shareholders.
(b) The return of capital at the time of winding up of the company, before the payment to the equity shareholder.
Both the rights must exist to make any share a preference share and should be clearly mentioned in the Articles of Association.
Preference shareholders do not have any voting rights, but in the following conditions they can enjoy the voting rights:
(1) In case of cumulative preference shares, if dividend is outstanding for more than two years.
(2) In case of non-cumulative preference shares, if dividend is outstanding for more than three years.
(3) On any resolution of winding up.
(4) On any resolution of capital reduction.
TYPES OF PREFERENCE SHARES:
In addition to the aforesaid two rights, a preference shares may carry some other rights. On the basis of additional rights, preference shares can be classified as follows:
CUMULATIVE PREFERENCE SHARES: Cumulative preference shares are those shares on which the amount of divided if not paid in any year, due to loss or inadequate profits, then such unpaid divided will accumulate and will be paid in the subsequent years before any divided is paid to the equity share holders. Preference shares are always deemed to be cumulative unless any express provision is mentioned in the Articles.
NON-CUMULATIVE