A “share” is defined under company law as a unit of ownership in the share capital of a company.
It represents equal portions into which a company’s capital is divided.
Public companies generally issue different classes of shares to attract various types of investors.
Each share type carries specific powers, rights, and privileges, which are mentioned in the Articles of Association and the company prospectus.
This guide explains all types of shares, including ordinary, deferred, preference, cumulative, non-cumulative, participating, redeemable, and guaranteed shares — with clear differences and examples.
1. Ordinary Shares
Ordinary shareholders:
- Receive no fixed dividend
- Are paid after preference shareholders
- Enjoy voting rights
- Participate in residual profits after all obligations are met
These are the most common type of shares issued by companies.
2. Deferred Shares
Deferred shares are usually issued to:
- Promoters
- Founders
- Vendors (as part of payment settlement)
Why they’re valuable:
- Holders receive the remaining profits after all other shareholders are paid
- Sometimes carry special rights depending on the Articles
They are also called Founder’s Shares.
3. Preference Shares
Preference shareholders enjoy priority in two areas:
- Dividend payment (fixed rate)
- Repayment of capital during winding up
They do not usually have voting rights (unless specified).
4. Types of Preference Shares
Below are the major kinds of preference shares with simple explanations:
⭐ 1. Cumulative Preference Shares
If the company cannot pay dividends in a particular year:
- The unpaid dividend accumulates
- Arrears must be paid in future years before ordinary shareholders get anything
These provide security to risk-averse investors.
⭐ 2. Non-Cumulative Preference Shares
- These shareholders get dividends only from current year’s profit
- If profits are insufficient, they cannot claim past unpaid dividends
No accumulation is allowed.
⭐ 3. Participating Preference Shares
These shareholders get:
✔ Fixed preference dividend
PLUS
✔ Additional share in surplus profits after ordinary shareholders receive a specified rate
If Articles do not mention participation, preference shares are assumed to be non-participating.
⭐ 4. Redeemable Preference Shares
Issued only if allowed by company Articles:
- Must be fully paid before redemption
- Redeemed either from reserve funds or from fresh issue of shares
Companies use them to raise temporary capital.
⭐ 5. Guaranteed Preference Shares
- A third party guarantees the dividend
- If the company cannot pay, the guarantor pays from private resources
These are rare today but historically used to attract conservative investors.
5. Kinds of Shares in a Company
| Type of Share | Key Feature | Dividend Rights | Capital Rights |
| Ordinary Share | Basic ownership | After preference shareholders | After all obligations |
| Deferred Share | Issued to founders/promoters | Share in remaining profits | Usually residual |
| Preference Share | Priority over ordinary shares | Fixed dividend | Priority in winding up |
6. Difference Between Shares & Debentures
| Shares | Debentures |
| Represent ownership in company capital | Represent borrowed funds (loan) |
| Shareholders are owners | Debenture holders are creditors |
| May have voting rights | No voting rights |
| Receive dividends (variable) | Receive fixed interest |
| Capital returned only during winding up or reduction of share capital | Capital repaid after fixed period |
| Profit/loss distribution applies | Interest payable regardless of profit |
| Rights defined in Articles | Rights defined in debenture certificate |
| Second priority during liquidation | First priority during liquidation |
| Not issued against company assets; unsecured | Usually secured by company assets |
7. Difference Between Shares & Stock
What is Stock?
Stock is a fractional part of company capital, created only from fully paid shares.
It cannot be issued directly.
⭐ Shares vs Stock Comparison Table
| Shares | Stock |
| Unit of share capital | Fraction of capital composed of fully paid shares |
| Share certificate issued | Stock certificate issued |
| Must have distinctive numbers | No numbering required |
| Can be partly paid | Created only from fully paid shares |
| Cannot be subdivided | Can be divided into fractions |
| Fixed face value | No fixed face value |
| Can be issued directly | Cannot be issued directly; must be converted |
8. Important Legal Note
According to Section 90(1) of the Companies Ordinance, 1984:
“A company limited by shares shall have only ordinary share capital, which may be subdivided into different classes.”
Exception:
This does not apply to preference shares issued before the commencement of the ordinance or issued under earlier contracts.
Expert Insight
Modern companies primarily issue ordinary shares because of regulatory simplicity, but preference shares remain useful for structured financing, investor protection, and attracting long-term strategic partners.
Quick Checklist: Understanding Share Types
✔ Ordinary shares = basic ownership
✔ Deferred shares = founders/promoters benefits
✔ Preference shares = guaranteed dividend + priority
✔ Cumulative vs non-cumulative = dividend rights
✔ Redeemable = temporary financing tool
✔ Participating = additional profit share
✔ Shares vs Debentures = ownership vs debt
✔ Shares vs Stock = issuance vs conversion
Conclusion
Companies issue different types of shares to meet the expectations of different investors.
Ordinary, deferred, and preference shares each carry their own rights, risks, and advantages.
Understanding these classifications helps investors make informed, safer, and more strategic financial decisions.
❓ FAQs
1. What are the main types of shares in a company?
Ordinary shares, deferred shares, and preference shares are the primary categories.
2. What is the difference between cumulative and non-cumulative preference shares?
Cumulative shares carry forward unpaid dividends; non-cumulative do not.
3. Are preference shareholders owners?
Yes, they are shareholders, but they usually have limited or no voting rights.
4. What is the difference between shares and debentures?
Shares represent ownership, while debentures represent borrowed funds. Find out more about types of Debentures here.
5. What is stock in a company?
Stock is created from fully paid shares and represents fractional capital.
Daniel is a business writer focused on entrepreneurship, finance, and investment strategies. He shares practical insights to help professionals and business owners make informed decisions in a fast-changing market.
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