Introduction to Different Classes of Company Shares

Shares are the real symbol of rights and power in a company. The rights of a particular share differ from one company to another company which is greatly depend upon the constitution, memorandum of associations and article of associations of the concern company issuing the share.

In a limited company any one can hold shares, even a worker who is working in the company and receives salary. Every share counts as a vote and more shares will bring more votes. Those companies consists of share capitals, it is accepted that all shares have identical rights, but the company can create a power in it’s memorandum and articles of associations to issue different classes of shares including ordinary, preferences, redeemable and convertible shares.

A company may have a variety of shares usually come with different conditions and rights. There are 4 types of common classes of shares available in the market and lets have a discussion over the various types of shares as listed bellow for better understanding:

1) Ordinary shares

2) Preference shares

3) Redeemable shares

4) Convertible shares

1) Ordinary shares:

Ordinary shares are the most common type of share which carries the right to vote. Almost every company has the ordinary shares and these are the only shares available with one class having no special rights and restrictions.

They are having the power to vote in a general meeting and carry the equal rights in reference to dividend and capitals. The ordinary share holders are the last to be paid if incase the company is wound up.

2) Preference shares:

In comparison to ordinary share holders, the preference share holders will be given some sorts of priorities. They are usually considered as less risky rather than ordinary shares. The preference share holders receive dividends before the ordinary share holders and the amount received is greatly unaffected even if the company made huge profit when annual dividends are distributed to the share holders. So all total it can be said that the preferential shares having the preferential rights in terms of dividends or capital.

The preference shares are again sub-divided into:

Cumulative preference shares: In case of cumulative preference share if a cumulative preference share holder can not be paid dividend fully or partially for one year then, it will be carried forward to consecutive years. Despite the earning of the company, dividend on share must be paid.

Participating preference shares:

These shares having the right to share in any surplus profit after dividends have been paid to both preference and ordinary share holders.

3) Redeemable shares:

Any class of shares can be redeemable. These shares come with an agreement that the company can buy them back from the members at future according to the terms are specified by the company. The company usually cancels the redeemed share once they bought back from the members.

4) Convertible shares:

In this case any class of shares can be transformed into different class of shares at a predetermined date and price. The article of the company should allow the investors or share holders to convert their shares into another class of shares.