Types Of Shares :
Any company can issue the following two types of shares.
1. Ordinary or Equity Shares and
2. Preference or Preference Shares
1. Equity Shares :
Ordinary shares mean those shares which do not have a preference like preference shares. In other words, equity shares mean those shares, the holders of which do not have the following rights:
(1) Preference in payment of dividend.
(1) Preference to repayment of capital at the time of winding up of the company [section 43]
Dividend is received by the holders of equity shares only when the amount of profit is left after paying the dividend to the preference shareholders. If the entire amount of profits of the company is exhausted in paying dividend to the preference shareholders, then it is not possible to pay dividend to the common shareholders. Similarly, if at the time of dissolution of the company all the assets of the company are exhausted in the repayment of capital of the preference shareholders, then the common shareholders do not have any right to object.
Simple fractions can be of two types:
(1) Voting
(ii) Differential Rights Differential rights may relate to dividends, voting or other matters. that have been determined.
It has been prescribed by the rules notified by the MCA that companies with rights can issue equity shares. The conditions and procedure for issuance of such shares are prescribed in No. [See rule SH-4]!
Any private company can issue differential right to dividend without following the prescribed conditions, if there is a provision to this effect in its memorandum or article. Notification dated 15th June 2015 |
(2). Preference Shares:
Preference shares mean such shares, the holders of which enjoy the following rights:
Huh :
(1) Right to receive dividend during the lifetime of the company.
(ii) Preference to refund of capital in case of winding up of company [Explanation to section 43
(i)] In addition to these, any share shall be deemed to be a preference share if the holders thereof enjoy any or both of the following rights:
(a) in addition to the right to receive profits (as stated in clause (i) above) its holders have the right to participate (wholly or in part) with those shareholders who do not have the above-mentioned preference .
(b) In addition to the preference in the return of capital at the time of winding up, they also have the right (wholly or limitedly) to participate or get a share in the surplus during the winding up. Explanation to section 43 (iii)]
Based on the above details and other provisions of the Act/ some of the major rights of preference shareholders are as follows:
1. Dividend Preference Preference shareholders have the right to receive dividends out of the profits of the company. After distributing the profit to them, out of the remaining amount, dividend is given to the equity shareholders.
2. Preference to repayment of capital Preference shareholders get the second right at the time of repayment of capital. When the company is wound up, the company uses the assets remaining after paying all the creditors for repayment of capital. In such a case preference shareholders are given priority over equity shareholders.
3. Fixed Dividend - Normally at a fixed rate per annum to the preference shareholders. Or have the right to receive a fixed amount in the form of dividend. Dividend is received simultaneously even in case of no profit on cumulative preference shares.
4. Received share in additional profits - Preference shareholders not only have the right to share in profits but also have the right to share in additional profits. When the company has paid the dividend to all its equity shareholders and even after that some profits are left with the company, the preference shareholders have the right to receive a share out of that balance as well. Such right is available to all preference shareholders unless there is a provision to the contrary in the Articles. (Section 43) In addition to the above rights, the following rights also have priority in certain circumstances:
Stakeholders can receive:
5. Suffrage - Preference shareholders have the right to vote in the meetings of the company in respect of all those matters which may affect their interests. The provisions regarding voting rights of preference shareholders are being given further in this chapter.
6. Right to convert into equity shares If the Articles provide for it, preference shareholders can get their shares converted into equity shares by the company after a certain period of time.
7. Redemption - Although equity shares are redeemed during life, preference shares must be amortized on a predetermined date or within twenty years of their issue (whichever is earlier).
Kinds of Preference Shares :
Preference shares are of the following types:
1.•Cumulative Preference Shares - Shares whose dividend keeps on accumulating are called Cumulative Preference Shares. But due to no profit in the company,If the dividend is not paid, that dividend keeps on accumulating or accumulating every year. Such shareholders have a right to receive payment of all outstanding and accumulated dividends whenever there is profit in the company. The company cannot distribute dividends to equity shareholders until the outstanding or accumulated dividends are paid to them.
Even if the winding up of the company commences before the accumulated profits are paid, the company is still liable to pay those accumulated profits if so provided in the articles of the company and dividends have been declared.
2. Non-cumulative preference shares - Shares on which dividend does not accrue are called non-cumulative preference shares. Dividend on such shares is payable in the same year when there is profit in the company. When there is no loss or profit in the company in any year, then such shareholders are not entitled to receive any dividend.
It may be noted that all preference shares are cumulative unless otherwise stated in the Articles of Association or the conditions of issue of shares. [Foster v. Coles, Foster & Sons Ltd., (1906) 22 TLR 555]
3. Participating Preference Shares - Such shareholders have the right to receive a certain dividend, but at the same time the equity shareholders have the right to receive some dividend from the remaining profits after paying the dividend. This remaining surplus profit is divided between preference shareholders and equity shareholders in a predetermined ratio. It may be noted that if in the articles of preference shares. If nothing is written, then they are called fractional preference shares.
4 Such shares are called unprivileged preference shares.
5. Convertible Preference Shares - The holder of such shares has the right to receive equity shares from the company in exchange for their preference shares after a certain period.
6. Non-convertible preference shares - Preference shares which cannot be converted into equity shares are called irrevocable preference shares.
7. Irredeemable preference shares The preference shares which are not to be redeemed or redeemed within any given time period are called Irredeemable Preference Shares. Such preference shares are redeemable only on the occurrence of a particular event (such as the measurement of the company) but the timing of such event is not predetermined. The Companies Act,-13 does not permit issue of such shares. [Section 55(1)]
8. Redeemable preference shares - Preference shares which can be repaid during the lifetime of the company are called redemption or due preference shares. The company may, if so provided in its Articles, redeem the preference shares, but the redemption can be done only if the shares are fully paid up.
Through the Companies Act, 2013, it has been provided that no company can issue preference shares due after more than 20 years.
But any company can issue preference shares due after a period of more than 20 years for infrastructure projects. [Section 55]
It has been prescribed by the rules notified by MCA that any company can issue redeemable preference shares after 20 years but within 30 years for its infrastructure projects. Provided that the redemption of at least 10 per cent of such shares shall be commenced on or before the 21st year. Such preference shareholders shall have the option of redemption of such shares on proportionate basis. [Rule SH-10]
Explanation - It has been made clear in the Act that 'structure projects' means those projects which are mentioned in Schedule VI of this Act.