Issue Of Share

Preference Shares

Preference shares are a type of share that grants shareholders two key preferential rights over equity shares:

1. Priority in Dividend Payments: Preference shareholders have the right to receive dividends before equity shareholders. These dividends are usually paid at a fixed rate based on the nominal value of the shares.
2. Priority in Capital Repayment: In the event of company liquidation, preference shareholders are paid before equity shareholders, ensuring they recover their capital investment first.

Apart from these two preferential rights, preference shares function similarly to equity shares. Holders of preference shares have voting rights but only on matters that directly impact their rights or obligations.

Preference shares can be categorized into different types based on their features:

• Redeemable or Irredeemable: Redeemable preference shares are repurchased by the company after a specific period, whereas irredeemable shares are not.
• Participating or Non-Participating: Participating preference shareholders are entitled to additional profits after dividends are paid, while non-participating shareholders receive only the fixed dividend.
• Cumulative or Non-Cumulative: Cumulative preference shares allow unpaid dividends to accumulate and be paid later, whereas non-cumulative shares do not carry forward unpaid dividends.

Equity Shares

Equity shares are those that do not carry any preferential rights, unlike preference shares. Instead, they represent ownership in the company and entitle shareholders to a share of its profits and decision-making process.

Key characteristics of equity shares include:

• Variable Dividend: The dividend paid to equity shareholders is not fixed and depends on the company’s financial performance. The Board of Directors determines the dividend amount each year. If no dividend is declared in a particular year, shareholders do not receive any compensation, as equity dividends do not accumulate.
• Voting Rights: Equity shareholders have voting rights proportional to their shareholding, following the “one share, one vote” principle. Unlike preference shares, equity shares must include full voting rights, as non-voting equity shares are not permitted.