Q.11. What is Share? Explain its various classes?
Ans. ORDINARY SHARE
An authorized capital of a company is divided into small parts. Every part is called share.
After the preference shares are paid dividend at the fixed race then comes the turn of the ordinary shares. These are the most important shares of the company. Whatever is left out of the profits of the company, after paying the preference shareholders, s distributed among the ordinary shareholders. If nothing is left after paying w the preference shares, the ordinary shares are not paid at all. Ordinary shareholders take the maximum risk as the profit or loss is borne by them.
Promoters themselves to have a lion’s share in the profits generally keep the shares. Whatever is left of the total profit, after paying all other shareholders, is distributed among the deferred shareholders. These shareholders get a large dividend in case the company cranes huge profits.
These shares are preferred on other shares. A fixed profit is paid on these shares. These shareholders have some preferential rights on other shareholders. Following are the kinds of preference shares.
CUMULATIVE PREFERENCE SHARES
If in any year profits of the company are not enough to pay the dividend of cumulative preference shares, it continues accumulating until the company finally pays it.
NON-CUMULATIVE PREFERENCE SHARE:
In such shares if profit is not paid in any year due to loss then it will never paid in future.
GUARANTEED PREFERENCE SHARE:
These are those shares, which another company takes guarantee of payment of a fixed and repayment of capital.
REDEEMABLE PREFERENCE SHARE:
Such shares are fully paid up before redemption. The repayment of these shares is made by issuing fresh shares or by creating reserve fund. These are payable after a certain period.
PARTICIPATING PREFERENCE SHARE:
These shareholders are entitled to receive profit at a fixed rate and they also participate the further surplus profit.