Meaning of Shares, Kinds of Shares

A share is referred to as a unit of ownership which represents an equal proportion of a company’s capital. A share entitles the shareholders to an equal claim on profit and losses of the company. There are majorly two kinds of shares i.e., equity shares and preference shares.

A share in the share capital of the company, including stock, is the definition of the term ‘Share’. This is in accordance with Section 2(84) of the Companies Act, 2013. In other words, a share is a measure of the interest in the company’s assets held by a shareholder. In this article, we will look at the different types of shares like preferential and equity shares. Further, we will understand certain definitions and regulations surrounding them.

The Memorandum and Articles of Association of the company prescribe the rights and obligations of shareholders. Further, a shareholder must have certain contractual and other rights as per the provisions of the Companies Act, 2013.

Section 44 of the Companies Act, 2013, states that shares or debentures or other interests of any member in a company are movable properties. Also, they are transferable in the manner prescribed in the Articles of the company. Further, Section 45 of the Act mandates the numbering of every share. This number is distinctive.

Different types of shares

As per section 43 of the Companies Act 2013, the share capital of the company is of two types:

• Preference Share Capital

Preferential shares are preferential in nature. During the liquidation of the company, the shareholders holding preferential shares are paid out first after settling the debts of the creditors of the company. Also, preferential shareholders do not have any voting rights. Various types of preferential shares are seen based on structure, maturity terms, nature of dividend payment, etc. below are some common types:

1. Cumulative Preference Shares:
   • Arrear will be received in subsequent years
   • At the time of inadequate profit, you will not lose anything.
   • The fixed rate of dividend is guaranteed.
2. Non-cumulative Preference Shares:
   • At the time of inadequate profit, they will not get anything.
   • Fixed rate of dividend is guaranteed.
3. Participating Preference Shares
   • Entitled to share the surplus profit
   • Fixed rate of dividend is guaranteed
4. Non-participating Preference Shares:
   • Does not share the surplus profit.
   • Fixed rate of dividend is guaranteed.
5. Convertible Preference Shares
   • It can be converted into Equity shares within a certain period.
6. Non-convertible Preference Shares:
   • It cannot be converted into Equity shares.
7. Redeemable Preference Shares:
   • Shares which a company may repay after a fixed period of time or earlier.
8. Irredeemable Preference Shares:
   • Shares are repayable only at winding up.
   • It does not carry the arrangement for redemption. .

• Equity Share Capital:

Equity Shares are also known as ordinary shares. Equity shares are one of the most common types of share. These are equal in value and also impart various rights like voting rights, dividends, etc. to the shareholders. These shares are traded in stock exchange and are issued at a face value.