Types of Shares :
According to the Companies (Amendment) Act, 2000, the share capital of a company limited by share, shall be of two kinds only namely:
I) Preference Shares and
II) Equity Shares
I. Preference Shares
The Companies Act, 1956, Sec. 85 deals with preference shares. Preference shares are those which satisfy the following two conditions.
1. The right to receive dividend at a specified rate before any dividend is paid.
2. Right to return of capital in case of winding up before the capital of equity share holders is returned.
Types of Preference Shares
Preference shares can be sub divided in different classes as follows:-
From the point of view of dividend payment
Cumulative Preference Shares: Holders of these shares have the right to receive arrears of dividend out of the subsequent years’
profit.
Non cumulative Preference Shares: In this case, arrears of dividend are not paid.
From the point of view of redemption
Redeemable Preference Shares: These shares are redeemed or repaid in accordance with the terms of issue after a specified period.
In India, companies can now issue only this category of preference shares.
Irredeemable Preference Shares: These are shares, which cannot be refunded before winding-up (Now all preference shares must
be redeemable)
From the point of view of participating in profits
Participating Preference Shares: The holders of this class of preference shares have the right to share profits remaining after the
payment of dividend to the equity shareholders. They also enjoy the right to participate in the surplus remaining after the repayment of capital of equity shareholders in case of winding-up of the company.
Non Participating Shares: It is as good as ordinary preference shares, which carry only fixed rate of dividend.
From the point of view of convertibility
Convertible Preference Shares: These are shares, which can be converted into an equity shares.
Non-Convertible Preference Shares: Shares which cannot be converted into equity shares, is called a non-convertible preference
share. Unless the Articles or terms of issue provide preference shares are deemed to be non-convertible.
II.Equity Shares :
Shares which are not preference shares are called Equity Shares. In other words, equity shares are those which are entitled to dividend
and repayment of capital after the preference share holders are paid. The rate of dividend is decided by the Board of Directors. Normally, equity shareholders control the affairs of the business.