Concepts and types of share capital
Money required by a company to commence and carry on its operations is raised by issuing shares and debentures. Although there are other sources of raising funds (like acceptance of public deposits, taking bank loans, etc.), issue of shares is the bulk of fund requirement by a company. The term ‘Share Capital of a company’ can be used in the following concepts:–
Types of Shares
A company can issue two types of shares:–
Preference shares carry a fixed rate of dividend which is to be paid before distribution of Equity Dividend. At the time of winding up of the company the claim of preference shares towards repayment of capital has to be satisfied before satisfying claim of Equity Shareholders. Preference share holders can neither get the Notice of A.G.M nor are they able to take part in deliberation of the meeting except when their dividend has remained unpaid for a specified number of years. Preference shares can be cumulative or noncumulative.
Equity shares are those which are not preference shares. They do not carry any specific rate of dividend; i.e. the rate of dividend can vary over the years depending on the sufficiency of profit. They are allowed to get notice and attend the A.G.M. of the company.
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