Different Classes of Shares and the Benefits and the Disadvantages of Each Type of Shares.

Topics: Stock market, Corporate finance, Stock Pages: 7 (2280 words) Published: April 1, 2010
First, we will mention about the purpose of this assignment, which is the benefit that we can gain from doing this project. From this project, it helps us to know the types of shares available in a company, definition of shares and the advantages and disadvantages of shares. From the information, this will enable a person who have interest invest in a company, purchase the shares that are suitable for them, based on the comparison between the advantages and disadvantages of each type of shares. Other than that, we can know the rights that attached to the shares.

On the other hand, we will mention that under what relevant case law or relevant sections, the rights of the shareholders will be changed or affected. These circumstances are significant important to those shareholders who want their interest to be protected. For an example, when a company is going to winding up and under the normal situation, preference shareholders will have no right to participate in the surplus assets and profits but under when Section 66 Companies Act 1965, he has the right on it.

Lastly, this project will give a fundamental or basic knowledge of each type of shares, the rights as being shareholders, which is useful in future, if we wish to success in our business field.

Definition of shares
According to Borlands Trustee v Steel Bros Co Ltd (1901), defines shares as the interest of a shareholder in the company measured by a sum of money, for purpose of a liability in the first place and of interest in the second but also consisting of a series of mutual covenants entered into by all the shareholders inter se. According to Section 4 Companies Act 1965 (hereinafter referred as CA’65) defines share as share in share capital of a corporation and includes stock except where a distinction between stock and shares is expressed or implied. In short, shares means that is the capital raised by a corporation, through the issuance and sale of shares. Section 98 CA’65 mentions the nature of share. The share or other interest of member in a company shall be moveable property, transferable in the manner provided by the articles, and shall not be of the nature of immovable property. It means that shares are movable properties, intangible in nature, chooses in action and transferable in nature unless the company is a private company. As according to Section 15 CA’65 private company has restriction of transferring share unless get the consent of all the members. There are various type of share in the market, such as ordinary share, preference share, deferred share, treasury share and others. However, the common one is ordinary share and preference share.

Definition of Ordinary Share
According to WorldReference.com Dictionary, ordinary share is share other than preferred share; entitles the owner to a share of the corporation's profits and a share of the voting power in shareholder elections.

Definition of Preference Share
Section 4 CA’65 defines preference share a share by whatever name called, which does not entitle the holder thereof to the right to vote at a general meeting or to any right to participate beyond a specific amount in any distribution whether by way of dividend, or on redemption, in a winding up or otherwise. According to WorldReference.com Dictionary, preference share is share whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights.

Benefits of Ordinary Share
There are several advantages for subscribing the ordinary shares rather than preference shares. First, as an ordinary shareholder, he is a proprietor or owner of the company. A shareholder is entitled to membership rights of the company. It means that a shareholder as a member of the company has full voting rights at any general meeting. Through voting, a shareholder can participate in the management of the company. If the shareholder holds the majority rights (more than or equal to 51% of the rights)...
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