SHARES AND ITS KIND

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BYMANISHA 5/13/12SEN

Sec 2(46) of THE COMPANIES ACT,1956:

A share is a share in the share capital of a

Company.

DEFINITION OF SHARES

Boreland Trustees v/s Steel Bros. & Co. Ltd.:

A share represents the interest of a share holder in the capital of the Company & this interest is measured by the number of shares
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KINDS OF SHARES
The different kinds of shares which can be raised by Companies are : EQUITY SHARES

PREFERENCE SHARES DEFERRED SHARES

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EQUITY SHARE:The equity shares or ordinary shares are those shares on which the dividend is paid after the dividend on fixed rate has been paid on preference shares.

Characteristics:

Risk bearing capital. No fixed rate of dividend. Right to vote. Owner of the company.
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Rights of equity share holders

1.The right to residual income. 2.Right of control. 3.Pre-Emptive right. 4.Residual claimants over asset.

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Advantage of equity share

To the issuing company:Permanent source of capital. No fixed dividend. Cheap and convenient source of finance. To the shareholders:Highly profitable shares Owner of the company
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Disadvantage of equity share

To the issuing company:Over capitalization. Dilution of control. Not a tax-deductible expense. Floatation cost is high. To the shareholders:Risk capital. Uncertainty of income. Loss in depression. Loss on liquidation.
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Preference share
Preference share are those share which enjoy priorities in the payment of dividend as well as in the repayment of the capital. Characteristics:Hybrid security. Preferential right. No controlling power. Claims on income.
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Types of preferential share

1.Cumulative preference share 2.Non cumulative preference share 3.Participating preference share 4.Non participating preference share 5.Convertiable preference share 6.Non convertible preference share 7.Redeemable preference share 8.Irredeemable preference share.
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Advantage of preference share

To the issuing company:No obligation to pay dividend. Provide long term capital No liability to redeemable preference share Fixed rate of dividend is to be paid so company can go for trading on equity. No voting right.

To share holders:Fixed dividend. Superior security over equity. Preference in payment of dividend,capital.

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Disadvantage of pref. share

To the issuing company:Expensive source as expected dividend is high. Permanent burden in case of cumulative preference share. Dividend do not save tax. Some preference shares carry voting rights also.

To the share holders:More fluctuations in market price as compared to the debenture. No voting right. No charge over asset.

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Deferred share(founder share)

They are usually of smaller denomination say 1 Rs each but they are given equal voting right with equity share of higher denomination. As per SEBI guidelines 2000,it is permissible to issue share of any par value subject to the condition that the value should not be less than Re.1or being other than the multiple of Re.1

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Sweat shares
They are issued at a discount to employees and directors. Share issued for consideration other than cash for providing know-how or making available rights in the nature of intellectual property right or value addition.

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THANK YOU

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