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Here is a detailed article about shares meaning and types of shares in india.
Shares meaning : Share capital of a company divided into units of small denominations, are called as shares. For example the share capital of whatsitis.com is Rs.5,00,,000 divide
d into 5,000 shares of Rs.100 each. As per provisions of companies Act 1956, the shares of any member is a movable property, it is transferable in the manner provided by the A.O.A.
As per provisions of the companies Act 1956 the company can issue the following 2 types of shares =
1 : Equity shares / Ordinary shares :
2 : Preference shares :
EQUITY SHARES –
As per companies Act 1956, the shares that are not preference shares are equity shares. The equity shareholders are the real owners of the company. They have a voting right, by using such a right they elects the Board of Directors. The board of directors manages the business affairs on behalf and in the interest of shareholders. The equity shareholders gets the dividend at a fluctuating rate. They can enjoy the benefit of “ Trading on equity “ . They gets dividend only after the dividend is paid to Preference shareholders. The equity capital is not redeemed / repaid until the company is liquidated. In the event of liquidation equity shareholders capital is repaid after all the payments are made to creditors and Preference shareholders. Therefore the ultimate risk goes to equity shareholders and so they are called the real owners.
PREFERENCE SHARES –
Preference shares are those shares which carry the rights and privileges over the equity shares in respect of :
- Payment of dividend.
- Repayment / refund of capital in the event of liquidation.
The rate the dividend on preference shares is fixed rate, before paying the dividend on equity shares. In the event of liquidation the preference share capital is refunded after the payment of unsecured creditors, but before the repayment of equity share capital .
TYPES OF PREFERENCE SHARES –
- Cumulative preference shares.
- Non cumulative preference shares.
- Participating preference shares.
- Non participating preference shares.
- Convertible preference ( into equity) shares.
- Non convertible preference shares.
- Redeemable preference shares.
- Irredeemable preference shares.