Nature of shares and types of shares are given in a section 49 of the companies act . The shares issued by the company accordingly are considered as a movable property, of the company.
By the company's Article of Association the following rights are conferred on the relevant shareholder who owns a share company .
- The right to exercise one vote for one share at a vote taken for adopting a resolution .
- Right to have an equivalent quota in the profit payable by the company
- Right to have an equivalent quota in the distribution of excess assets in a liquidation .
Different types of shares
Different classes of shares can be issued by a company. The following are included among them.- Ordinary Shares
- Preference Shares
- Special Shares
- Shares with voting rights
- Shares without voting rights
It would be seen that as per decision of the Board of Directors as indicated above, various rights , privileges and shares with liabilities could be issued as required by the company.
Shares issued accordingly could be of the following nature.
- Ordinary / Equity shares
- Preference shares
- Special shares
- Shares with limited or conditional voting rights
- Redeemable shares
Ordinary / Equity shares
Equity shareholders will receive dividend and repayment of capital after meeting the claims of preference shareholders. There will be no. of fixed rate of dividend to be paid to the equity shareholder and this may vary from year to year . This state of dividend is determined by the directors . Sometimes , in case of larger profits.Preference shares
Capital stock which provides specific dividend, debit paid before any dividend are paid to ordinary shareholders which takes precedence over common stock in the event of liquidation. Preference shares represent partial ownership in a company but the shareholders do not enjoy any of the voting rights of common shareholders.
Deferred / Founders shares
There are issued to founders of a company .They have special rights to get dividend . Deferred shareholders enjoy the right to all the profit left over after the payment of equity shares. Usually companies avoid issuing such shares because they cause down on ordinary shareholders.
Non - Voting Shares
Non- voting shares are, as there names implies , equity does not have vote even though it is entitled to share of profit. eg : Deferred shares , Preference shares. ( But they have guaranteed dividend ) and most Non - voting shares do not have guaranteed dividend.
Golden shares
Shares with special voting rights that allow the holder to vote out other shareholders usually in restricted.circumstances . It may also give the shareholder special rights . Common powers attached to the golden shares are :
Veto power : ability to block any shareholder from acquiring more than in certain proposition of ordinary shares.
Power to block any take over.
Types of Preference Shares
- Cumulative- Non - Cumulative
- Participative
- Redeemable or convertible
Cumulative Preference Shares
Preference shares on which dividend on acquire in the extent the issues does not make timely the dividend payment
Non - Cumulative Preference shares
Preference shares which unpaid dividend do not acquire.
Participative Preference shares
Preferred stock which in addition to regular dividend also pays an additional dividend ( Participating dividend ) when common stock dividend exceeds a specific amount.
Cumulative Participating Preference shares
Shares which are not cumulative of profit but also participate in the profit which is left over after equity shareholders are paid.
Redeemable Preference shares
Company issues redeemable preference shares as for a specific time period. These shares are issued when the company has some growth and expansion plans in mind . The shareholders can choose time to maturity on these shares . At the end of stipulated they can choose to exchange the shares for either equity shares of for cash.
Non- Redeemable Preference Shares
Company issues Non redeemable preference shares not for a specific period of time
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