Ordinary shares
These carry no special rights or restrictions. They rank after
preference shares as regards dividends and return of capital but carry
voting rights (usually one vote per share) not normally given to holders
of preference shares (unless their preferential dividend is in
arrears).
Some companies create more than one class of ordinary shares – e.g. “A Ordinary Shares”, “B Ordinary shares” etc. This gives flexibility for different dividends to be paid to different shareholders or, for example, for pre-emption rights to apply to some shares but not others.
In some cases, different classes of ordinary share may be of different nominal values – for example, there may be £1 Ordinary shares and £0.01 Ordinary shares. If each share had the right to one vote (and assuming the shares were issued at their nominal value), then the £0.01 Ordinary shareholders would get 100 votes per £1 paid while the £1 Ordinary shareholders would get 1 vote for paying the same amount.
Some companies create more than one class of ordinary shares – e.g. “A Ordinary Shares”, “B Ordinary shares” etc. This gives flexibility for different dividends to be paid to different shareholders or, for example, for pre-emption rights to apply to some shares but not others.
In some cases, different classes of ordinary share may be of different nominal values – for example, there may be £1 Ordinary shares and £0.01 Ordinary shares. If each share had the right to one vote (and assuming the shares were issued at their nominal value), then the £0.01 Ordinary shareholders would get 100 votes per £1 paid while the £1 Ordinary shareholders would get 1 vote for paying the same amount.
Deferred ordinary shares
A company can issue shares which will not pay a dividend until all
other classes of shares have received a minimum dividend. Thereafter
they will usually be fully participating. On a winding up they will
only receive something once every other entitlement has been met.
Non-voting ordinary shares
Voting rights on ordinary shares may be restricted in some way –
e.g. they only carry voting rights if certain conditions are met.
Alternatively, they may carry no voting rights at all. They may also
preclude the shareholder even attending a General Meeting. In all other
respects they will have the same rights as ordinary shares.
Redeemable shares
The terms of redeemable shares give the company the option to buy
them back in the future; occasionally, the shareholder may (also) have
the option to sell them back to the company, although that’s much less
common.
The option may arise at or after a specific date, between two dates or be effective at any time the shares are in issue. The redemption price is usually the same as the issue price, but can be set differently. A company can only redeem shares out of profits or the proceeds of a new share issue, which may restrict its ability to redeem shares even if the directors would like to exercise the option.
If a company chooses to have redeemable shares, it must also have non-redeemable shares in issue. At no point can all of its share capital be made up of redeemable shares.
The option may arise at or after a specific date, between two dates or be effective at any time the shares are in issue. The redemption price is usually the same as the issue price, but can be set differently. A company can only redeem shares out of profits or the proceeds of a new share issue, which may restrict its ability to redeem shares even if the directors would like to exercise the option.
If a company chooses to have redeemable shares, it must also have non-redeemable shares in issue. At no point can all of its share capital be made up of redeemable shares.
Preference shares
These shares are called preference or preferred since they have a
right to receive a fixed amount of dividend every year. This is
received ahead of ordinary shareholders. The amount of the dividend is
usually expressed as a percentage of the nominal value. So, a £1, 5%
preference share will pay an annual dividend of 5p. The full entitlement
will be paid every year unless the distributable reserves are
insufficient to pay all or even some of it. On a winding up, the
holders of preference shares are usually entitled to any arrears of
dividends and their capital ahead of ordinary shareholders. Preference
shares are usually non-voting (or only have a vote only when their
dividend is in arrears).
Cumulative preference shares
If the dividend is missed or not paid in full then the shortfall
will be made good when the company next has sufficient distributable
reserves. It follows that ordinary shareholders will not receive any
dividends until all the arrears on cumulative preference shares have
been paid.
By default, preference shares are cumulative but many companies also issue non-cumulative preference shares.
By default, preference shares are cumulative but many companies also issue non-cumulative preference shares.
Redeemable preference shares
Redeemable preference shares combine the features of preference
shares and redeemable shares. The shareholder therefore benefits from
the preferential right to dividends (which may be cumulative or
non-cumulative) while the company retains the ability to redeem the
shares on pre-agreed terms in the future.
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