TYPES OF SHARES

The shares which can be issued by a company, are of two types,namely:

1. Preference shares, and 2. Equity or ordinary shares.

Any other type of shares cannot be issued by a public company or a

private company which is a subsidiary of a public company [Sec. 86].

However, a private company which is not a subsidiary of a public company, can issue other kinds of shares or shares with disproportionate rights -[Sec.

90 (2)].

1. Preference Shares. Preference shares are those which carry the following preferential rights over other classes of shares: (a) a preferential right in

respect of a fixed dividend, (b) a preferential right as o repayment of capital in the case of winding up of the company in priority to other classes of shares

(Section 85).

The sum-total ofthe preference shares is the ‘preference share capital’

of the company.

Kinds of Preference Shares. The preference shares may be of the

following kinds:

1. Cumulative and non-cumulative preference shares.

2. Participating and non-participating preference shares.

3. Convertible and non-convertible preference shares.

4. Redeemable and irredeemable preference shares.

1. Cumulati’e and Non-cumulative Preference Shares. The ‘cumulative preference shares’ are those which are assured of the dividends every year even

if there are no profits in a particular year. If in a particular year there are no profits to pay the dividends, the unpaid dividend of such prefetence shares is

treated as arrear and is carried forward to the subsequent years. TIllIS, the unpaid dividend goes on accumulating and is paid when there are sufficient

profits in the subsequent years. It may be noted that when there are profits in a ye.1r then the arrear of dividend are paid to the preference shareholders

before paying anything to the other (i.e. equity) shareholders. Ifthe company goes into liquidation, the arears of any dividends are not payable unless either

it provides so or such dividends have been declared. .

All preference shares are always presumed to be cumulative unless the contrary is stated in the Articles or the terms of issue.