TYPES OF SHARES

TYPES OF SHARES

These are two type of shares

1. Preference Shares:-Those shareholder which have preferential right in following matter

a.  They get assured preferential dividend at fixed rate during the life of company.

b.  They are having preferential right to be paid first in case of winding up of company, from other shareholders.

According to section 43 of companies Act 2013, person holding preference shares are called preference shareholders. However, Holder of preference share does not have voting rights.

The company Act 2013, prohibits the issue of preference share which is irredeemable. Preference shares are cumulative and Non-participating unless otherwise stated. According to Company Act, preference shares which are redeemable within 20 years can only be issued.

Types of Preference Shares.: These are following type:-

a.  Cumulative Preference Shares   

•  A cumulative preference share is one that carries the right to a fixed amount of dividend every year. If current year profit is insufficient, it is paid from future profit. So dividend is accumulated unless it is paid in full and such shares are called Cumulative Preference Share.
• The arrears of dividend are shown in balance Sheet as ‘Contingent Liabilities’.
• In India ‘Preference shares’ are always cumulative unless otherwise stated.
• If dividends are in arrears for a period not less than two year, holders of such shares will be entitled to take part and vote on every resolution in general body meeting of shareholders.

Non-Cumulative Preference Shares

o   These are those shares which do not carry right to get divided accumulated or carry forward if profit of current year are insufficient. In other words we can say if company cannot pay dividend in one year then right of shareholder to receive dividend in future period expires.

o   If dividend remains arrears for a period not less than two years or an aggregate periods of not less than three years comprised in six years ending with the expiring of financial year, holder of such shares will be entitled to take part and vote on every resolution at any meeting of shareholders.

Participating Preference shares :--These shareholders have following rights

o   Right to get fixed percentage of dividend.

o   Right to participate on stipulated profit after equity shareholders have been paid at stipulated rate.

o   In case of winding up of company, these shareholder also get right to receive pre-determined portion of surplus after equity shareholders have been paid off.

d. 

     Non participating preference Share:- These shareholders only get fixed percentage of dividend every  

      year. They don’t have right to participate in profit and surplus in case of winding-up of company.

Redeemable Preference Shares.: These are shares that company may issue on the condition that company will repay after the fixed period or even earlier at company discretion. It is governed by section 55 of the companies Act 2013.

Non-Redeemable Preference shares:- Those shares which are not redeemable are called non redeemable preference shares. According to section 55, no company limited by shares shall issue irredeemable preference share or preference shares redeemable after expiry of 20 years from the date of issue.

Convertible Preference Shares:- These shareholder have right to convert their shares into equity shares at their option according to terms and conditions of their issue.

Non-Convertible preference Shares :These shareholders do not have right to convert their shares into equity shares.

2   2. Equity Shares(section 43(a) :-These are those shares which are not Preference Share. They don’t have preferential right in matter of dividend or repayment of capital. On Equity shares dividend is recommended by Board of Directors and dividend may vary from year to year.These shareholders carry voting right in general meeting of shareholders. Company (Amendment) Act 2000, permit issue of equity share capital with differential right as to dividend, voting or otherwise.

3        SHARES Issued of for cash :- To Issue shares, private companies raise funds from private placement of shares. Public companies for raising funds issue prospectus and invite general public to subscribe for its shares. On basis of prospectus, applications are deposited in scheduled bank by interested parties along with amount payable at the time of application. First installment along with application is called application money. As per section 39 of the co act 2013, application money cannot be less than 5% of face value of shares.

§  SEBI Guidelines require the shares issued are made fully paid-up within 12 months of the date of allotment if the size of the issue is up to 500 crores.

§  As per SEBI Guidelines, the minimum application money to be paid by an applicant along with the application shall not be less than 25% of the issue price.

IMP. NOTE --  matters related to issue and transfer of securities will be administered by the SEBI and not by the Company Law Board(CLB)

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