1. Explain different types of preference shares which can be issues
2. Describe in brief the features of equity shares.
an be issued by a company.
Answers
Types of Preference Shares :
Participating preference shares: shares which provides the holder a right to participate in the surplus of the company after a certain rate of dividend has been paid to equity shareholders.
Non-Participating preference shares: shares that do not enjoy right of participation to surplus profit after a rate of dividend is paid.
Cumulative preference shares : shares whose dividend, if not paid during a year, gets accumulated.
Non-Cumulative preference shares : shares which do not enjoy right to accumulate unpaid dividend.
Convertible preference shares : shares which can be converted into equity shares after a specified period of time.
Non-convertible preference shares : shares which cannot be converted into equity shares.
Features of Equity Shares :
Equity shareholders have the right to vote on various matters of the company.
The management of the company is elected by equity shareholders.
The equity share capital is held permanently by the company and returned only upon winding up.
Equity shares give the right to the holders to claim dividend on the surplus profits of the company. The rate of dividend on the equity capital is determined by the management of the company.
Equity shares are transferable in nature. They can be transferred from one person to another with or without consideration.
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Answer:
1) Cumulative preference shares : These are those shares , the holders of which are entitled to recover the arrears of preference dividend , before any dividend is paid on equity shares . this means that if any year , the profit of the company are insufficient to pay duvidend on these shares ,the dividend keeps on accumulating until its fully paid
2) Non - cumulative preference shares : The holders of such shares get a fixed amount of dividend out of the profits of each year. if no dividend is declared in any year due to any reason , such shareholders get nothing , nor they claim unpaid dividend if any year in any subsequent year
3) Participating preference shares : In addition to the fixed preference dividend , carry a right to participate in the surplus profits if any after dividend at a stipulated rate has been paid to equity shareholders .
4) Non participating preference shares : asuch shares get only a fixed rate of dividend every year and do not carry a right to participate in the surplus profits.
Explanation: