(b) Companies can issue shares of different value, and with different rights attached to them.
– Ordinary shares
These shares are sometimes referred to as ‘equity in the company’. Of all the various types of shares, they carry the greatest risk, but in recompense receive the greatest return. The nominal value of shares is fixed and determines the shareholder’s level of potential liability to the extent that they are not paid up. However, the exchange value of the shares in the stock market fluctuates in relation to the performance of the company. Ownership of ordinary shares entitles the holder to attend and vote at general meetings.
– Preference shares
These involve less of a risk than ordinary shares. They may have priority over ordinary shares in two respects: dividends and repayment. They carry a fixed rate of dividend, which has to be paid before any payment can be made to ordinary shareholders. Such rights are cumulative unless otherwise provided. This means that a failure to pay a dividend in any one year has to be made good in subsequent years.
As regards repayment of capital, preference shares do not have priority unless, as is usually the case, this is specifically provided for. Also, without specific provision, preference shares have the same rights as ordinary shares, but it is usual for their voting rights to be restricted. Preference shareholders are entitled to vote at class meetings convened to consider any alteration to their particular rights but, apart from that, they are usually restricted to voting in general meetings when their dividends are in arrears. |
