Business

Types of Shares in Company

The Company Ordinance defines share as “a share in the share capital of the company” It represents equal portions into which ‘the capital is divided. Each of these portions is called a share of the company. A public company generally issues various classes of shares in order to satisfy the requirements of different investors. The powers and rights of various classes of share are laid down in the Articles and Prospectus of the company.

Kinds of Shares

Ordinary Share

These shareholder have no special rights in regard to dividend. They are entitled to participate in the profits earned by the company after the payment of fixed dividend to preference shareholder.

Deferred Share

These shares are issued to promoters who take initiative in the formation of the joint stock company. So these are also called “Founder’s Shares”. Some times such shares are allotted to vendors as fully or partially settlement of the purchase price of the business.

These are usually valuable shares, as these may have an entitlement to participate in all profits remaining after the payment of shares.

Preference Share

These shareholders have preferential rights or privileges in respect of the payment of dividend or repayment of capital in the event of winding up of the company. They are entitled to receive a fixed rate of dividend out of the profits of the company in priority to other share kinds.

Different Types of Preference Shares

Cumulative Preference Shares

These shares have additional privileges in regard to payment of dividend. If the profits of anyone period are insufficient to pay their fixed dividend, the right to such dividend accumulates until all arrears of unpaid dividend due to them have been satisfied in full.

Non Cumulative Preference Share

Such shareholders are entitled to a fixed rate of dividend out of the current year’s profit. If the profits are not available for distribution, the arrears of unpaid dividend are not carried toward to subsequent years.

Participating Preference Shares

The holder of such shares are entitled to preference dividend at fixed rate arid to participate further in surplus profit after all the other shareholders have received a specified rate of dividend. In the absence of written provisions, preference shares are deemed to be non-participating.

Redeemable Preference Shares

A public company may issue these shares if so authorized by its Articles. Such shares are fully paid up before redemptions. The repayment of these shares is made by creating a Reserve fund or out of the proceeds of a fresh issue of shares made for the object of the redemption.

Guaranteed Preference Shares

These shares are for a fixed rate of dividend by third party. If the profits of any one year are not sufficient to pay such dividend, the guarantors have to pay the same of their private resources.

Kinds of shares in company

Important Note

The above-mentioned types of shares have been described in the company Act 1913, But according to section 90 (I) of the companies ordinance 1984 “A company limited by shares shall have an only ordinary share capital, which may be sub-divided into different classes.

Provided that this sub-section shall not apply to preference shares issued before the commencement of this ordinance or in pursuance of a contract or agreement entered into before such commencement”.

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