2. Shares
What is share?
A share is the capital of a company and includes stock except the
difference between stock and share is expressed or implied.
Company divides its capital into small sub-parts of equal value
The sub-divided are called SHARES.
Public limited companies are allowed to issue their shares to he public.
Whereas Private Limited Companies DON’T.
3. According to Webster
“New world dictionary”
It is a unit of ownership in a corporation, mutual fund or less commonly
same other type of financial investment.
4. Equity share/ordinary shares
No company can come into existence without equity capital.
The shareholders are the legal owners of the company.
Equity share capital represents permanent capital of company since a
company need not repay the money so raised.
5. Voting rights
The eight to vote on important occasions.
Helps the shareholders to gain control over the management company.
Each share carries one vote
6. Claim on profits of the company
The remaining profits amog the shareholders in the form of cash
dividends.
Retained earnings benefit the owners in the form of enhanced value of
shares or increased dividend
THE COMPANY IS UNDER LEGAL OBLIGATION TO PAY THE DIVIDEND.
SHAREHOLDERS GET DIVIDEND WHEN DIRECTORS DECLARE THE
DIVIDEND.
7. CLAIM ON ASSETS
THE CLAIM OF SHAREHOLDERS ON THE ASSETS OF THE COMPANY IS
RESIDUAL CLAIM.
THE EQUITY SHAREHOLDERS NORMALLY REMAIN UNPAID, WHEN A
COMPANY CLOSES DOWN DUE TO BUSINESS FAILURE.
8. PREEMPTIVE RIGHTS
THEY ARE GIVEN BY WAY OF SUBSCRIPTION WARRANT, MEANING THE
NUMBER OF NEW SHARES THAT SHAREHOLDERS IS ENTITLED TO BUY.
THE SHAREHOLDERS MAY BUY THE SHARE OR ALLOW THE RIGHT TO
LAPSE OR SELL THE RIGHT AT THE STOCK MARKET.
9. RIGHT TO CONTROL
CONTROL MEANS THE RIGHT TO INFLUENCE THE MANAGEMENT OF THE
COMPANY.
SHAREHOLDERS THE RIGHT TO ELECTR THE DIRECTORS, THROUGH THE
EXERCISE OF VOTING RIGHTS. THEY CAN EVEN REMOVE THE DIRECTORS
IF THE PERFORMANCE IS NOT VERY GOOD.
THEY ARE ABLE TO CONTROL THE MANAGEMENT OF THE COMPANY
THROUGH THEIR VOTING RIGHTS AND TO MAINTAIN PROPORTIONATE
OWNERSHIP.
10. Merits and Demerits of equity FINANCING
ADVANTAGES TO THE COMPANY
PERMANENT CAPITAL
NO DIVIDEND BURDEN
NO CHAREG ON ASSETS
EASY BORROWING
LARGE AMOUNTS
11. DISADVANATGES OF THE COMPANY
HEAVY COST
NO TRADING ON EQUITY
CONCERNING OF SHARES
FEAR OF TRANSFER OF CONTROL
12. ADVANTAGES OF SHAREHOLDERS
VOTING RIGHTS
PRE-EMPTIVE RIGHTS
TRANSFER OF SHRES
HIGH DIVIDEND AND EARNING
FAVE VALUE IS SMALL
13. DISADVANTAGES OF THE SHAREHOLDERS
UNCERTAIN RETURNS
PRINCIPLE AMOUNT
FALL IN EPS
DILUATION OF OWNERSHIP
14. Preference Shares
Like ordinary shares, confer ownership rights to its holders who are
entitled to fixed rates of dividends out of the profits of the company.
Four types of preference shares
1. Cumulative and non-cumulative shares
2. Redeemable and irredeemable shares
3. Participating and non- participating shares
4. Convertible and non-convertible shares
15. Merits if preference shares as a Source of Finance
Advantages for the company
No dividend
Long term funds
No risk of insolvency
No charge on assets
No dilution of ownership and control
Stronger financial base
16. Disadvantages to the company
Non-Deductibility of liquid
Commitment to pay dividend
Dilution of the claim of ordinary shareholders
17. Advantages to the preference shareholders
Fixed Dividend
Preferences
Right to nominate
18. Disadvantages to the preference shareholders
No voting rights
Rates of dividend fixed
Redemption
