According to Companies Act 2013, “Share means a share in the share capital of a company including stocks shares are considered as a type of security”. There are two types of shares i.e. equity shares and preference shares. Let us learn about both the types of shares.
Equity Shares
Equity shares are the most important source of raising long term capital by a company. These shares represent the ownership of a company. The capital raised by issue of equity shares is known as ownership capital or owner’s funds. Equity share capital is a prerequisite to the creation of a company. Equity shareholders do not get a fixed dividend. They are paid on the basis of earnings by the company. They are also referred to ‘residual owners’. They receive the claim after all other claims on the company’s income and assets have been settled. They enjoy the reward and also bear the risk of ownership. The liability of equity shareholder is limited to the extent of capital contributed by them in the company. They have a right to participate in the management of the company through their right to vote.
Preference Shares
Preference shares refer to those shares which have certain special rights. The dividend is payable on these shares before the equity shares. Capital is repaid to preference shareholders before the return of equity capital in case of winding-up of the company. Preference shareholders do not have the voting rights. In case of non-payment of dividend, the preference shareholders may claim the voting rights. The voting rights may be claimed if dividends are not paid to cumulative preference shareholders for two years or more and for non-cumulative preference shares for three years or more.
