COMPANY - INTRODUCTION

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Classification of companies
Capital Structure
Classes of Shares
Loan capital (Debentures/ Bonds)

Capital Structure

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The capital of company comprises of shares invested

by the owners who are known as shareholders. The
share capital can be divided into difference types.
Authorized/ Nominal/ Registered Capital
Par or Nominal Value
Issued capital
Unissued capital
Called up capital
Uncalled capital
Paid up capital
Unpaid Capital
Prepared by: Samuel Jeba
raj Benjamin

Capital Structure

Prepared by: Samuel Jeba

raj Benjamin

Classes of Shares
1. Ordinary shares.
All companies must have ordinary shares.
It carries the right to vote and entitled for the share in the
profit (dividend- after other dividend if any- have
been paid)
Risk- should the business fail, they can lose their capital.
Return should the business prove to be successful, the
rewards can be very high.
The ordinary shareholders are effectively the owners of the
company.
Prepared by: Samuel Jeba
raj Benjamin

Classes of Shares
2. Preference Shares.
Generally these shares carry preferential
rights as to the payment of dividends
and repayments of the capital in the
event of liquidation.
Preference shares may be cumulative, noncumulative, participating, nonparticipating, redeemable or convertible.
Prepared by: Samuel Jeba
raj Benjamin

a)

Cumulative preference share

the holders of these shares are entitled to received a
fixed dividend per annum. Should insufficiency or
the absence of profits prevent payment of dividends
in any year, the arrears can be carried forward and
become payable in future.

b)

Non cumulative preference shares.

Holders of this class of shares receive a fixed rate of
dividend. However should the company not have
sufficient profits to declare a dividend, the dividend
for that year are forfeited and cannot be carried
forward.
Prepared by: Samuel Jeba
raj Benjamin

c)

Participating preference shares

In the addition to the fixed dividend that they receive,
participating preference shareholders are allowed to
participate, that is, to receive additional dividends to
the extend expressed in the Articles, in any further
profits, after all the other classes of shareholders
have received their dividends.

d)

Non participating preference share.

These shareholders are not allowed to participate in
the excess profits after all the other classes of
shareholders have been paid their dividends.

Prepared by: Samuel Jeba

raj Benjamin

e)

Redeemable preference shares

Redeemable preference shares can be repurchased
from the shareholders at a future date as predetermined at the time of the issue of the
redeemable preference shares. This type of shares
allows the company to obtain capital of a semipermanent nature at fixed rate of dividend

f)

Convertible preference shares.

These preference shareholders are entitled to
convert their preference shares to ordinary shares
as expressed in the Articles. The date and the rate
will be specified.
Prepared by: Samuel Jeba
raj Benjamin

Treasury Stock (Treasury Shares)

Stock that has been repurchased by the
issuing company.
These shares don't pay dividends,
have no voting rights,
and should not be included in shares
outstanding calculations

Prepared by: Samuel Jeba

raj Benjamin

Treasury stock is created when a company

does a share buyback and purchases its shares
on the open market.
This can be advantageous to shareholders because
it lowers the number of shares outstanding.
However, not all buybacks are a good thing.
For example,
if a company merely buys stock to improve financial ratios
such as EPS or P/E,
then the buyback is detrimental to the shareholders,
and it is done without the shareholders' best interests in mind.

Prepared by: Samuel Jeba

raj Benjamin

LOAN CAPITAL
(Debenture)
A company may raise funds by borrowing from the
public. The document that the company issues
stating terms of the borrowing is called
debenture.
The term bond is normally used for long termlarge amount from government/ overseas
/locally .
Debenture are LOAN CAPITAL that company has
to pay fixed rate of interest payable regardless of
the performance of the company.
Prepared by: Samuel Jeba
raj Benjamin

Debentures vs Shares
1. Fixed rate of interest
regardless of company
makes a profit or not
2. The holders are
creditors- not have any
voting rights.
3. Priority claims over the
s/hdrs of the company
assets.
4. Debenture interest
EXPENSE Charge to
P&L.

1. Not compulsory to pay

dividends
1. Holders owners
having voting rights.
2. No priority in terms of
claims on assets.
3. Dividend distribution
of profit shown in P&L
appropriation

Prepared by: Samuel Jeba

raj Benjamin

Issues of shares
Shares can be issued at:
a) Par value/nominal value the value of each
share as per its authorised share capital.
Companies may issue their shares at par but it is
not compulsory.
b) Premium Shares are offered to the public at a
price higher than its par value. The funds in
excess of the par value will be credited a Share
Premium Account. This premium will form part
the capital reserves of the

Prepared by: Samuel Jeba

raj Benjamin

Terms of the Issue

Applicants for the issue of share are
required to:
a) Pay the full amount of the share price
upon application
b) Pay by means of installments (this is not
common practice in Malaysia)- but
however we WILL STILL HAVE TO
LEARN IT! Bad news right?

Prepared by: Samuel Jeba

raj Benjamin

Pay the full amount

This approach is simple
Lets looks Example 1 Jane Lazar.

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raj Benjamin

Pay by means of installments

The share price is collected in the
following stages:
a) Application
b) Allotment
c) Calls ( first call, second call, final call)

Prepared by: Samuel Jeba

raj Benjamin