Types of shares
Types of shares:
Share issued by a company can be divided into following categories:
(I) Preference Shares: According to section 85 of the Companies Act, 1956, persons holding preference shares, called preference shareholders, are assured of a preferential dividend at a fixed rate during the life of the company. They also carry a preferential right over other shareholders to be paid first in case of winding up of the company. Thus, they enjoy preferential rights in the matter of:
(a) Payment of dividend, and
(b) Repayment of capital
Generally, holders of these shares do not get voting rights. Companies use this mode of financing as it is cheaper than raising debt. Dividend is generally cumulative in nature and need not be paid every year in case of deficiency of profits. The Companies Act, 1956, prohibits the issue of any preference share which is irredeemable. Preference shares are cumulative and non-participating unless expressly stated otherwise.
Types of Preference Shares
Preference shares can be of various types, which are as follows:
(a) Cumulative Preference Shares: A cumulative preference share is one that carries the right to a fixed amount of dividend or dividend at a fixed rate. Such a dividend is payable even out of future profit if current year’s profits are insufficient for the purpose. This means that dividend on these shares accumulates unless it is paid in full and, therefore; the shares are called Cumulative Preference Shares. The arrears of dividend are then shown in the balance sheet as a contingent liability. In India, a preference share is always cumulative unless otherwise stated. In case, the dividend remains in arrears for a period of not less than two years, holders of such shares will be entitled to take part and vote on every resolution on every matter in the general body meeting of the shareholders.
(b) Non-cumulative Preference Shares: A non-cumulative preference share carries with it the right to a fixed amount of dividend.
Share issued by a company can be divided into following categories:
(I) Preference Shares: According to section 85 of the Companies Act, 1956, persons holding preference shares, called preference shareholders, are assured of a preferential dividend at a fixed rate during the life of the company. They also carry a preferential right over other shareholders to be paid first in case of winding up of the company. Thus, they enjoy preferential rights in the matter of:
(a) Payment of dividend, and
(b) Repayment of capital
Generally, holders of these shares do not get voting rights. Companies use this mode of financing as it is cheaper than raising debt. Dividend is generally cumulative in nature and need not be paid every year in case of deficiency of profits. The Companies Act, 1956, prohibits the issue of any preference share which is irredeemable. Preference shares are cumulative and non-participating unless expressly stated otherwise.
Types of Preference Shares
Preference shares can be of various types, which are as follows:
(a) Cumulative Preference Shares: A cumulative preference share is one that carries the right to a fixed amount of dividend or dividend at a fixed rate. Such a dividend is payable even out of future profit if current year’s profits are insufficient for the purpose. This means that dividend on these shares accumulates unless it is paid in full and, therefore; the shares are called Cumulative Preference Shares. The arrears of dividend are then shown in the balance sheet as a contingent liability. In India, a preference share is always cumulative unless otherwise stated. In case, the dividend remains in arrears for a period of not less than two years, holders of such shares will be entitled to take part and vote on every resolution on every matter in the general body meeting of the shareholders.
(b) Non-cumulative Preference Shares: A non-cumulative preference share carries with it the right to a fixed amount of dividend.