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Types of Shares


Posted Date: 15-Mar-2010  Last Updated:   Category: Education    
Author: Member Level: Gold    Points: 10


This article describes about the different types of shares that are present in the market. Read this article to know more about equity shares, preference shares, deferred shares, bonus shares and other related information.



There are different types of shares. I have mentioned about the most popular shares which are as follows:-
Equity shares: These shares are also known as ordinary shares. They are the shares which do not enjoy any preference regarding payment of dividend and repayment of capital. They are given dividend at a fluctuating rate. The dividend on equity shares depends on the profits made by a company. Higher the profits, higher will be the dividend, where as lower the profits, lower will be the dividend.

Preference shares: These shares are those shares which are given preference as regards to payment of dividend and repayment of capital. They do not enjoy normal voting rights. Preference shareholders have some preference over the equity shareholders, as in the case of winding up of the company, they are paid their capital first. They can vote only on the matters affecting their own interest. These shares are best suited to investors who want to have security of fixed rate of dividend and refund of capital in case of winding up of the company.

Deferred shares: These shares are those shares which are held by the founders or pioneer or beginners of the company. They are also called as Founder shares or Management shares.
In deferred shares, the right to share profits of the company is deferred, i.e. postponed till all the other shareholders receive their normal dividends. Being the last claimants of the profits, they have a considerable element of speculation or uncertainty and they have to bear the greatest risk of loss. The market price of such shares shows a very wide fluctuation on account of wide dividend fluctuations. Deferred shares have disproportionate voting rights. These shares have a small denomination or face value.

Deferred shares are not transferable if issued by a private company. Deferred shareholders do not enjoy the right of priority to have shares offered in case of the issue of shares by the company. If the company goes into liquidation the deferred shareholders can get refund of capital and participate in the surplus capital, if any, after the rights of preference and equity shareholders have been satisfied.

Bonus shares: The word bonus means a gift given free of charge. Bonus shares are those shares which are issued by the company free of charge as bonus to the shareholders. They are issued to the existing shareholders in proportion to their existing share holdings. It is a kind of gift to the shareholders from the company. It is bonus in the form of shares instead of cash. It is given out of accumulated profits and reserves. These shares have all types of preferences which are available to the existing shares. For example. two bonus shares for five equity shares. The issue of bonus shares is also termed as capitalization of undistributed profits.
Bonus shares is a type of windfall gain to the equity shareholders. They are advantageous to the equity shareholders as they get additional shares free of cost and also they earn dividend on them in future.

Conditions for issue of bonus shares:

(i) Sufficient amount of undistributed profits: There must be sufficient amount of undistributed profits for the issue of bonus shares.

(ii) Provision in the articles: There must be a provision in the articles of association regarding the issue of bonus shares. If there is a provision in the articles regarding the issue of bonus shares the company can issue bonus shares if there is no provision, the company cannot issue the bonus shares.

(iii) Suitable Resolution: The Board of Directors must pass a suitable resolution in the Board meeting for the issue of bonus shares.

(iv) Shareholders approval: The shareholders must give formal approval for the issue of bonus shares in the Annual General Meeting.

(v) When a company can issue: A company can issue bonus shares only twice in a period of five years.

(vi) Fully paid up shares: Bonus shares can be issued only when the existing shares are fully paid up.


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Responses to "Types of Shares"
Author: Ayodele    18 Mar 2010Member Level: Gold   Points : 2
You have given a detailed information about shares. Before now, I never knew the types of shares and their characteristics. But can you please tell me the best one a student who doesn't have much money but is interested in investing the little he has in shares?

Waiting for your response, thank you.

Regards,
Kingskid.



Author: Anil Kumar Aitwal    19 Mar 2010Member Level: Gold   Points : 1
I have heard a lot about share prices going up and down and the sensex increasing and decreasing but I have never been able to understand what and how they actually happen. They say that investing shares make you rich, but how I have never understood.


Guest Author: Ramu     18 Aug 2012
You have given a detailed information about shares. Before now, I never knew the types of shares and their characteristics. But can you please tell me the best one a student who doesn't have much money but is interested in investing the little he has in shares?

Waiting for your response, thank you



Guest Author: LOKESH     04 Sep 2014
Hi this Lokesh . I am full satisfaction about the answer for shares given , and easy to under stand


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