Page 10 - LILITED LIABILITY COMPANIES - INTERMEDIATE
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COMPANY ACCOUNTING SESSION 14
1.7 TYPES OF SHARES
Dividends
A shareholder of a limited company obtains his reward in the form of a share of the profits, known as a
Dividend.
(a) Dividends are normally paid as a percentage of the nominal value of the share,
(b) Dividends are declared only on the called up capital.
The dividend is usually expressed as a percentage. Ignoring income tax, a dividend of 10% in Firm A on
500,000 Ordinary shares of € 1 each will amount to € 50,000, or a dividend of 6% in Firm B on 200,000
Ordinary shares of € 2 each will amount to € 24,000. A shareholder having 100 shares in each firm would
receive € 10 (ie 10% of € 100) from Firm A and € 12 from firm B (6% of € 200).
Ordinary Shares (The 'Equity')
The holders of ordinary shares:
(i) have voting rights;
(ii) must wait until the preference shareholders have been allocated their dividend before they can receive
any share of the profits.
(iii) in the liquidation of a company, the ordinary shareholders must wait until the preference shareholders
have had their capital repaid before they can receive the return of their own capital.
(iv) in a company which is being run successfully, the ordinary shareholders' share of profits may be very
good and, in a liquidation they may stand to receive repayment in excess of their original capital
outlay.
Nominal Value
Shares are described as having a particular face value known as their nominal (or par) value. They may have
a nominal value of €1, 50c, 25c, 10c or even 5c; on the other hand the nominal value could be more than
€1, say €5.
Shares Issued at a Premium
The directors of a company may consider that shares to be issued are worth more than their nominal (or
par) value. In that case, they may issue them at a premium. For instance, ordinary shares of €1 each may be
issued at €1.20 i.e. at a premium of 20c.
Market Value
The price which, it is estimated, a share would fetch if it were put up for sale.
©LAWRENCE CAUCHI AIPFM, LMLCC, FIAB, MAAT, MIAAP. Page 9 of 19
