A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.
There are two types of shares equity shares and then preference shares.
(a) Equity shares : Equity shares represent the ownership of a company. They have right to vote and right to participate in the management.
Some features of equity shares
(i) The equity shareholders are the primary risk bearers as they provide fixed capital.
(ii) The equity share capital is not reedemable during the life-time of the company.
(iii) Returns are uncertain as the rate of dividend is not fixed.
(iv) Equity shareholders can participate in the company’s matter.
(b) preference shares : Preference shares are considered safer in investment. As compare to equity shares. They receive dividend at a fixed rate. Preference shareholder are like creditors. They have no voting right.
Some features of preference shares
(i) Preference shares are long-term source of finance.
(ii) The dividend payable on preference shares is generally higher than debenture interest.
(iii) Preference shareholders get fixed rate of dividend irrespective of the volume of profit.
Types of preference shares:
Cumulative preference shares.
Non cumulative preference shares.
Participating preference shares.
Non participating preference shares.
Convertible preference shares.
Non Convertible preference shares.