TYPES OF SHARES - 15 Mints Seminar Notes

TYPES OF SHARES - 15 Mints Seminar Notes

SHARE

• A company’s capital is divided into small equal units of a finite number. Each unit is known as a share. In simple terms, a share is a percentage of ownership in a company or a financial asset. Investors who hold shares of any company are known as shareholders
  
• For example ; if the market capitalization of a company is Rs. 10 lakh, and a single share is priced at Rs. 10 then the number of shares to be issued will be 1 lakh
  

TYPES OF SHARES

1. PREFERENCE SHARES

As the name suggests, this type of share gives certain preferential rights as compared to other types of share. The main benefits that preference shareholders have are:

• They get first preference when it comes to the payout of dividend, i.e. a share of the profit earned by the company.
  
• When the company winds up, preference shareholders have the first right in terms of getting repaid.
  

There are nine different types of preference shares given below:

Convertible Preference Shares

Convertible preference shares are those shares that can be easily converted into equity shares.

Non-Convertible Preference Shares

Non-Convertible preference shares are those shares that cannot be converted into equity shares.

Redeemable Preference Shares

Redeemable preference shares are those shares that can be repurchased or redeemed by the issuing company at a fixed rate and date. These types of shares help the company by providing a cushion during times of inflation.

Non-Redeemable Preference Shares

Non-redeemable preference shares are those shares that cannot be redeemed or repurchased by the issuing company at a fixed date. Non-redeemable preference shares help companies by acting as a lifesaver during times of inflation.

Participating Preference Shares

Participating preference shares help shareholders demand a part in the company’s surplus profit at the time of the company’s liquidation after the dividends have been paid to other shareholders.

However, these shareholders receive fixed dividends and get part of the surplus profit of the company along with equity shareholders.

Non-Participating Preference Shares

These shares do not benefit the shareholders the additional option of earning dividends from the surplus profits earned by the company, but they receive fixed dividends offered by the company.

Cumulative Preference Shares

• Cumulative preference shares are those type of shares that gives shareholders the right to enjoy cumulative dividend payout by the company even if they are not making any profit.
  
• These dividends will be counted as arrears in years when the company is not earning profit and will be paid on a cumulative basis the next year when the business generates profits.
  

Non - Cumulative Preference Shares

• Non - Cumulative Preference Shares do not collect dividends in the form of arrears. In the case of these types of shares, the dividend payout takes place from the profits made by the company in the current year.
  
• So if a company does not make any profit in a single year, then the shareholders will not receive any dividends for that year. Also, they cannot claim dividends in any future profit or year.
  

Adjustable Preference Shares

In the case of adjustable preference shares, the dividend rate is not fixed and is influenced by current market rates.

2. EQUITY SHARES

Equity shares are also known as ordinary shares. The majority of shares issued by the company are equity shares. This type of share is traded actively in the secondary or stock market. These shareholders have voting rights in the company meetings. They are also entitled to get dividends declared by the board of directors. However, the dividend on these shares is not fixed and it may vary year to year depending on the company’s profit. Equity shareholders receive dividends after preference shareholders.

3. DIFFERENTIAL VOTING RIGHT (DVR) SHARES

The DVR shareholders have less voting rights compared to equity shareholders. To dilute the voting privileges, companies provide extra dividend to DVR shareholders. As DVR shares have less voting rights, their prices are also low. The price gap between equity shares and DVR shares is almost 30-40%.

Presented By,

Niveedha

Banking Student 

Magme School Of Banking