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Types of share capital - ordinary shares and preference shares

Ordinary shares - are sometimes known as ‘common stock’. Gives holders the right to vote at

meetings as well as take dividends from the company’s profits. Voting rights mean you have a

say on issues such as salaries and the future direction of the business. Although you do have the

right to dividends when they are paid, companies are not obliged to distribute them should a

decision be made to the contrary.

Preference shares - come with no voting rights but they do provide an advantage over ordinary

shareholders when it comes to receiving dividends. Preference shareholders are first in line for

dividend payments, both when the business is operating, and also in the event of the company

entering liquidation in the future. There are two main types of preference shares:

 Cumulative preference shares

 Non-cumulative preference shares

Issue of shares (exclude issue by instalment and forfeiture)

Issue of Shares is the process in which companies allot new shares to shareholders.

Shareholders can be either individuals or corporates. The company follows the rules prescribed

by Companies Act 2013 while issuing the shares. Issue of Prospectus, Receiving Applications, and

allotment of Shares are three basic steps of the procedure of issuing the shares. The process of

creating new shares is known as Allocation or allotment. (htt46)

Types of reserves - share premium, revaluation reserve, general reserves and retained profits

Share premium - the excess of the issue price of a share over its nominal value. A company's

share premium account exists for certain defined purposes, namely:

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