A share is a fixed part of the company’s share capital. Legally a share
may be defined as the interest which a shareholder has in a company, and in
measured by a sum of money for the purpose of-
may be defined as the interest which a shareholder has in a company, and in
measured by a sum of money for the purpose of-
(1) Computing the
shareholder’s liability.,
shareholder’s liability.,
(2) Ascertaining the amount
of the shareholder’s dividend, that is, his proportionate part of the
distributed profits; and
of the shareholder’s dividend, that is, his proportionate part of the
distributed profits; and
(3) Reckoning his share in
the surplus assets of the company in the event of winding up. The issue of
share capital is a prima facie evidence that the person named thereon is the
shares set out in the certificates.
the surplus assets of the company in the event of winding up. The issue of
share capital is a prima facie evidence that the person named thereon is the
shares set out in the certificates.
The three principal classes of share are preference, ordinary and
deferred shares, but there are many variations of the following list includes
the classes must frequently encountered;
deferred shares, but there are many variations of the following list includes
the classes must frequently encountered;
(1) Preference
(2) Cumulative preference
(3) Participating preference
(4) Redeemable preference
(5) Ordinary
(6) Preferred ordinary
(7) Deferred ordinary
(8) Deferred etc.
The respective rights and privileges attaching to each class of share
are determined by the provisions of the Memorandum and Articles of Association,
but the more usual feature of the above classes of share s may be summarized
thus:
are determined by the provisions of the Memorandum and Articles of Association,
but the more usual feature of the above classes of share s may be summarized
thus:
(1) Preference shares: Are those which, by the memorandum or Articles
of Association, confer some preferential right other classes of shares, usually
the right to fixed divided out of the profits of each year before any divided
is paid to the holders of ordinary shares. In many cases, the additional right
to return of capital in priority to other classes is also given.
of Association, confer some preferential right other classes of shares, usually
the right to fixed divided out of the profits of each year before any divided
is paid to the holders of ordinary shares. In many cases, the additional right
to return of capital in priority to other classes is also given.
(2) Cumulative preference shares entitle the holder to a dividend at a
fixed rate, such dividend being payable out of nature profits in the event of
current year’s profits being insufficient. All areas of dividend on these
shares must be paid before the other shareholders can participate in the
profits. Unpaid cumulative preference dividends are not liabilities in the
ordinary sense; the liability is contingent upon the company earning sufficient
profits out of which to pay the dividends and upon the declaration of the
dividend. Moreover, the directors are usually authorized by the Articles to
transfer a part, or even the whole of profits to reserve before payment of any
dividends.
fixed rate, such dividend being payable out of nature profits in the event of
current year’s profits being insufficient. All areas of dividend on these
shares must be paid before the other shareholders can participate in the
profits. Unpaid cumulative preference dividends are not liabilities in the
ordinary sense; the liability is contingent upon the company earning sufficient
profits out of which to pay the dividends and upon the declaration of the
dividend. Moreover, the directors are usually authorized by the Articles to
transfer a part, or even the whole of profits to reserve before payment of any
dividends.
Preference shares are
assumed to be cumulative unless the contrary is clearly stated in the
Memorandum or Articles of Association.
assumed to be cumulative unless the contrary is clearly stated in the
Memorandum or Articles of Association.
(3) Participating
preference shares: usually confer the right to fixed dividend, and, in
addition, entitle the holder to participate in surplus profits (if any) after
the Ordinary Shareholders have received a dividend at a stated rate.
preference shares: usually confer the right to fixed dividend, and, in
addition, entitle the holder to participate in surplus profits (if any) after
the Ordinary Shareholders have received a dividend at a stated rate.
(4) Redeemable preference shares: may be issued by a limited
company, if authorized by its articles. Such shares may be cumulative,
non-cumulative, or participating, according to the terms of issue, but the
power of redemption is subject to the following conditions: –
company, if authorized by its articles. Such shares may be cumulative,
non-cumulative, or participating, according to the terms of issue, but the
power of redemption is subject to the following conditions: –
(a) The
shares are to be redeemed only out of profits available for dividend, or out of
the proceeds of a fresh issue made for redemption purposes;
shares are to be redeemed only out of profits available for dividend, or out of
the proceeds of a fresh issue made for redemption purposes;
(b) The
shares are not to be redeemed unless they are fully paid;
shares are not to be redeemed unless they are fully paid;
(c) Where
shares are redeemed out of profits there must be transferred to a “capital
Redemption Reserve Fund”, out of profits otherwise available for dividend, a
sum equal to the nominal amount of the shares redeemed;
shares are redeemed out of profits there must be transferred to a “capital
Redemption Reserve Fund”, out of profits otherwise available for dividend, a
sum equal to the nominal amount of the shares redeemed;
(d) Any
premium payable on redemption must be provided out of the profits of the
company or out of the company’s share premium account before the shares are
redeemed.
premium payable on redemption must be provided out of the profits of the
company or out of the company’s share premium account before the shares are
redeemed.
Subject to the above, redemption may be effected as provided in the
Articles. Redemption does not amount to a reduction of the authorized Capital.
Where share are redeemed or are about to be redeemed under the above
provisions, the company may issue further shares of equal nominal amount to
those redeemed, without incurring any further liability for stamp duty in
respect of the new issue, provided that the redemption takes place within one
month after the fresh issue.
Articles. Redemption does not amount to a reduction of the authorized Capital.
Where share are redeemed or are about to be redeemed under the above
provisions, the company may issue further shares of equal nominal amount to
those redeemed, without incurring any further liability for stamp duty in
respect of the new issue, provided that the redemption takes place within one
month after the fresh issue.
The company may apply the Capital
Redemption Reserve Fund in paying up unissued shares of the company to be
issued to members as fully-paid bonus shares; but otherwise the provision of
the CAMB 1990 as to reduction of capital apply to the fund.
Redemption Reserve Fund in paying up unissued shares of the company to be
issued to members as fully-paid bonus shares; but otherwise the provision of
the CAMB 1990 as to reduction of capital apply to the fund.
Every balance Sheet of company which has issued redeemable preference
shares must contain a statement specifying what part of the issued capital of
the company consists of such share, and the earliest and latest dates on which
the company may demand the shares, whether they must then be redeemed or
redemption is optional, and the amount of any premium payable on redemption.
shares must contain a statement specifying what part of the issued capital of
the company consists of such share, and the earliest and latest dates on which
the company may demand the shares, whether they must then be redeemed or
redemption is optional, and the amount of any premium payable on redemption.
(5) Ordinary shares: Are those which, as a general rule, are entitle to
the whole of the divisible profits after satisfaction of the rights of
preference Shareholders. Except where participating Preference or Deferred
Shares are issued, no rate of dividend on Ordinary Shares is stated.
the whole of the divisible profits after satisfaction of the rights of
preference Shareholders. Except where participating Preference or Deferred
Shares are issued, no rate of dividend on Ordinary Shares is stated.
(6) and (7). The Ordinary Shares are sometimes split into two
sub-classes PREFERRED ORDINARY and DEFERRED ORDINARY. The holders of the of the former class of
share have a prior right to a fixed non-cumulative dividend, and unit this
dividend is paid, the holders of Deferred Ordinary shares do not participate in
the distribution of profits.
sub-classes PREFERRED ORDINARY and DEFERRED ORDINARY. The holders of the of the former class of
share have a prior right to a fixed non-cumulative dividend, and unit this
dividend is paid, the holders of Deferred Ordinary shares do not participate in
the distribution of profits.
(8) DEFERRED or FOUNDERS’
SHARES: Are those which rank for dividend after the Ordinary Shares have
received some specified maximum rate. Seldomly created nowadays, they were
often formerly issued as fully paid to the original vendors or their nominees
in satisfaction of part of the purchase price of the business, or for services
rendered in the formation of the company. These shares are generally of small
nominal value, and as they receive a considerable proportion of the surplus
profits after the dividend on the Ordinary Shares has reached a fixed rate and
usually carry extensive voting powers, such shares are extremely valuable when
business is successful.
SHARES: Are those which rank for dividend after the Ordinary Shares have
received some specified maximum rate. Seldomly created nowadays, they were
often formerly issued as fully paid to the original vendors or their nominees
in satisfaction of part of the purchase price of the business, or for services
rendered in the formation of the company. These shares are generally of small
nominal value, and as they receive a considerable proportion of the surplus
profits after the dividend on the Ordinary Shares has reached a fixed rate and
usually carry extensive voting powers, such shares are extremely valuable when
business is successful.