Types of Shares

The types of shares are as follows:

  • Ordinary Shares or Equity Shares - Ordinary or equity shares are commonly known are normally issued with a face value of either $0.10 each or $1 each. It is common that some companies might reduce the face value from $1 to $0.50 or to $0.1. This is to make the ordinary shares more affordable to buyers or investors. The holders of these shares are the real owners of a company. They bear the rights and enjoy the profits ( or suffer the loses). In a bad economic, the company might make little or not profits, they receive no dividends  and possibly suffer capital loss in the stock value. Conversely, in good times, they receive high dividends and bonus shares. These shareholders are the ones entitled to
preference-shares  vote and decide on company policy. In liquidation, they divide among themselves the assets leaf over after all others including the preference shareholders have been paid. They stand to lose their investment if there are no assets left after the others have been paid off. On the other hand, they stand to make a lot of money if the assets remaining are far in excess of their original investments.
  • Preference Shares - Preference shares are not frequently issued nowadays. They carry the right of a fixed rate of dividend and preferential treatment at the time the company is liquidated. Preference shareholders are to be paid prior to the payment of ordinary shareholders. Preference shareholders do not have the right to vote at annual general meetings or decide on company policy.
  • Cumulative Convertible Preference Shares ( CCP ) - This kind of preference shares are cumulative to the extent that they have a right to a fixed rate of dividend. If a company has not had sufficient profits to distribute the dividend to the preference shareholders, the dividend due will accumulate. Additionally these are convertible to equity shares after a period of time ( between three years and five years).  These may be issued either to set up new projects, to finance expansions or diversification, to finance modernization and to raise funds for working capital requirements. In effect a cumulative convertible preference share ( CCP ) is a fully convertible debenture with a lower interest rate.