Meaning and types of shares

Meaning and types of shares

The capital of a company is divided into small units of fixed amount. These units are called shares. The shares which can be issued by a company are of two types (i) preference shares and (ii) equity shares.

(i) Preference shares

Preference shares are the shares which have the following two preferential rights over the equity shares:

b.     Preference towards the payment of dividend at a fixed rate during the life time of the company and

c.      Preference towards the repayment of capital on winding up of the company.

(ii) Equity shares

Equity shares are those shares which are not preference shares. These shares do not enjoy any preferential rights. Rate of dividend is not fixed on equity shares and it depends upon the profits earned by the company. Incase of winding up of a company equity shareholders are paid after the payments are made to preference shareholders. Equity shares are also known as ordinary shares.