2.5 Types of Shares


So when a company decides to raise capital through public shares it may issue different types of shares to the public. The following are the four major types of shares issued by a company: Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up. Most investors are interested in ordinary shares of the company. And these are traded in the stock market exchanges. Ordinary shares give you:

1) Ordinary share gives you:

• A share in the company’s dividend (explained above) which is declared once or twice a year.
• A stake in the company’s assets.
• A right to attend the company’s Annual General Meeting.
• The right to vote on issues affecting the company.

2) Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. They also have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, in case a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.

3) Cumulative preference

Cumulative preference shares give holders the right that if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preferred shares must be paid, despite the earning levels of the business.

4) Redeemable

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. However, a company cannot issue only redeemable shares.

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