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Homework answers / question archive / “A company may issue different types of shares that come with different conditions, and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business” You are required to: Demonstrate the understanding of the various types of shares a company can issue and explain the difference between them

“A company may issue different types of shares that come with different conditions, and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business” You are required to: Demonstrate the understanding of the various types of shares a company can issue and explain the difference between them

Accounting

“A company may issue different types of shares that come with different conditions, and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business” You are required to: Demonstrate the understanding of the various types of shares a company can issue and explain the difference between them.

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  • Ordinary shares:
  • Most of the companies usually have one type of or single class of shares called ordinary shares. They come along with company's incorporation.
  • Each share is entitled to one vote and each share has equal dividends. Each share is entitientititle to participate in distribution, as a result of winding up of company
  • However, most of the companies prefer to issue multiple class of shares, also known as alphabet shares.
  • Deferred ordinary shares:
  • A company can issue shares which will not pay a dividend until all other classes of shares have received a minimum dividend.
  • After that they will be fully participating shares.
  • On liquidation, they will receive after every other entitlement has been met.
  • Non-voting ordinary rights:
  • They donot carry voting rights stall or carry them by meeting certain conditions.
  • They may also preclude the shareholder, from general meeting. All other are similar to ordinary shares.
  • Redeemable shares:
  • Term of these shares have optionto company to buy them back by the company at some future date.
  • Company can only redeem shares after the proceeds from fresh issue of non redeemable shares.
  • Preference shares:
  • Right to receive fixed amount of dividends every year, in addition to ordinary shares.
  • Dividend is usually expressed as a percentage of nominal value.
  • Cumulative preference shares:
  • If the dividend is missed or not paid, then the company first pays out these dividends out of all available profits next, by default, preference shares are cumulative. But many companies also issue non cumulative preference shares.
  • Redeemable preference shares:
  • Combination of preference shares and redeemable shares.
  • Shareholder benifits from the preferential right to dividend, while the company has chance to redeem the shares at future date.

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