Share Capital

Topics: Stock market, Corporate finance, Stock Pages: 19 (6076 words) Published: November 26, 2012

Share capital is the Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares. Each share carrying a vote in the management of the business, managerial control may be limited. The authorized capital of a company is the maximum amount of share capital that the company is authorized by its constitutional documents to issue to shareholders. Issued Capital is the value of the shares issued to shareholders. This means the nominal value of the shares rather than their actual worth. The amount of issued capital cannot exceed the mount of the authorized capital. Types of Share Capital:-

Redeemable Shares
Ownership shares that the issuing business may repurchase. Some redeemable shares are mandatorily redeemable and must be repurchased by the issuer on a particular date or on the occurrence of a specified event, such as the death of an owner. Preference Shares

Preference shares differ from ordinary shares in giving the holder preferential rights to receive a share of annual profits. An ordinary dividend cannot be paid unless all preference dividends due have been paid in full. Preference shares are also higher in the creditor hierarchy than ordinary shares, and have a preferential right to receive the proceeds of disposal of the assets in the event of a company going into liquidation. They are therefore less risky than ordinary shares, even though they are legally share capital as well. There are three further types of preference shares:-

Participating preference shares
Preference shares which, in addition to paying a specified dividend, entitle preference shareholders to participate in receiving an additional dividend if ordinary shareholders are paid a dividend above a stated amount.

Convertible preference shares
A preference share that can be converted into common shares at aset conversion price. A company may issue them to finance a major acquisitions without increasing the company’s gearing or diluting the EPS of the ordinary shares. Redeemable preference shares

A preference share which must be bought back by the company at an agreed date and for an agreed price Deferred Shares
A share that does not have any rights to the assets of a company undergoing bankruptcy until all common and preferred shareholders are paid. Where it exits, it will rank behind all other shares for dividend. Non-voting Shares

A share which equity that does not have a vote, even though it is entitled to a share of the profits. The term is not usually applied to preference shares, although preference share do not have votes, they receive a fixed dividend.

Retained profit:-
Retained profit is the profit kept in the company rather than paid out to shareholders as a dividend. Retained profit is widely regarded as the most important long-term source of finance for a business.

Dividend payable:-
The amount of dividends which have been declared by a company’s board of directors and which are obligated to be paid to shareholders. If the dividend yield falls, then the share becomes less attractive compared to other investments, demand for it will fall, and supply will increase as investors wish to sell. Newspaper information on share:-

Many of the broadsheet papers include a section showing security prices and related information including: the highest and lowest prices during the year; the closing price the previous day; the change in price over the previous trading day; dividends net of tax; dividend cover; gross yield; and the P/E ratio.

Share categories:-
Shares are categorized according to the company type and trading frequency: Alphas
These are the shares of the most prestigious companies which are generally heavily traded and...
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