Types of Shares and Meaning (subjectbag.com.ng)
Types of Shares and Meaning

What is shares?

DEFINITION: A shares can be referred to as the individual portion of the company’s capital owned by shareholders. In order definition shares is a unit of capital measured by a sum of money. It is an interest that is owned by a shareholder.


Types of Shares

There are two types of shares, which are Preference shares and Ordinary shares.

1. Preference shares: This is the type of shares that has priority in terms of dividend payment and repayment of capital, they have a fixed rate of dividends.

Features of preference share

1. Preference shares have no voting rights.
2. they are entitled to return of capital at winding up.
3. They have fixed rates of interest.
4. Holders receive dividends before others.

Types of preference shares

1. CUMULATIVE PREFERENCE SHARES: cumulative preference shares have priority in the share of dividends over others. Cumulative preference shares receive arrears of dividends not paid before shares, i.e when no profit is declared, their dividends will be carried forward to the following year.

Features of cumulative preference shares

1. No voting rights.
2. It has a fixed rate of dividend.
3. They receive arrears of dividends.

2. Participating preference shares: Participating preference shares are shares that are entitled to further percentage of dividends after the ordinary shares have received a specified percentage of profits. Participating preference shares have the right to participate equally with the ordinary shareholders in surplus dividends apart from their fixed dividends

Features of participating preference shares

1. They receive a fixed rate of dividends like other preference shares.
2. They also participate in further dividends after all others have been paid
3. They usually receive dividends before ordinary shares.

3. Redeemable Preference shares: are shares that have prior claims to dividends before all other preference shares. The owners of the business can buy back these shares after some time. The shares are issued to finance a particular project.

Features of redeemable preference shares

1. They have prior claims before other preference shares.
2. They are issued out to finance a particular project
3. They can be bought back

4. Non-cumulative preference shares: In this type of share, the dividend does not accumulate from one year to another. Where a company fails to pay dividends in a particular year, it cannot be carried forward.
5. Non-participating preference: Non-participating preference shares are the opposite of participating preference shares, it is not entitled to further dividends after the ordinary shares have been paid.

2. Ordinary shares: The ordinary share are the real owners of the business. The holders are the risk bearer and they receive their dividends after all other shares have been paid. Ordinary shares are also called equities, it can be vote and be voted for.

Feature of ordinary share

1. There is no fixed rate of dividend.
2. They receive dividends last after others have been paid.
3. They are the risk bearers
4. They have voting rights.

Types of ordinary shares

1. Deferred or founders’ shares: Deferred shares are shared which are entitled to the remainder of profit after all other shares (preference and ordinary) have been paid. They are usually issued to the founders or promoters of the business.

Features of deferred shares

1. They have more voting rights.
2. They are issued to the founders of the business.
3. The holders are entitled to the remainder of the dividends after all others have been paid.

2. Preferred ordinary shares: Preferred ordinary shares which receive dividends after the preference shares have been paid. They have preference over other classes of ordinary shares.

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