What are the different shares?

Types of shares

There are two types of shares. They are.

1. Equity Shares

2. Preference Shares

 

Equity shares

We also know equity shares as ordinary shares. These shares have voting rights. Equity share is a main source of finance for any company giving investors the right to vote, share market profits and claim on assets.

 

Features of equity shares

1. They are permanent.

2. Equity shareholders are the actual owners of the company and they bear the highest risk.

3. Equity shares are transferable. i.e. ownership of equity shares can be transferred with or without consideration to other people.

4. Dividend payable to equity shareholders is an appropriation of profit

5. Equity shareholders do not get a fixed rate of dividends.

6. They limit the liability of equity shareholders to the extent of their investment.

We know a share that is not a preference share as equity share. It doesn’t offer a fixed rate of return. They don’t get a fixed rate of dividends. It entitles the whole of the profit of a company to these shareholders, only after paying a fixed dividend to preference shareholders

 

Preference Shares

Preference shares are those shares that carry certain special or priority rights. First, dividends at a fixed rate are payable on these shares before they pay any dividend on equity shares.

Second, at the time of the winding-up of the company, it repays the capital to preference shareholders before the return of equity capital.

Preference shares do not carry voting rights. However, holders of preference shares may claim voting rights if they do not pay the dividends for two years or more on cumulative preference shares and three years or more on non-cumulative preference shares types.

 

Features of Preference Shares

1. Preference shares are a long-term source of finance.

2. The dividend payable on preference shares is higher than the debenture interest.

3. Preference shareholders get a fixed rate of dividends irrespective of the volume of profit.

4. We know it as the hybrid security because it also bears some characteristics of debentures.

5. The preference dividends tax in India is not tax-deductible expenditure.