share

 Q2.What is a share? What is the difference between Equity Share and Preference Share? 

Meaning of Share 

A share is an indivisible unit of a company's capital, which cannot be broken into smaller pieces and is used by the company to raise capital. Each share has a fixed value, which is called its face value. The one who buys these shares is called a shareholder. 

Types of Shares

Shares are of the following two types: 

1. Equity Share

2. Preference Share

1. Equity Share

Equity shares are those shares that are not preference shares. 

Equity shares are for those individuals who do not desire a fixed income and prefer to take risks. 

Shareholders of this type do not receive the following two priorities. 

1.Preference in Dividend 

2.Preference in Repayment of Capital 

Shareholders of this type receive the following two rights:

1.Right to receive notice of meetings.

2.Right to vote. 

2. Preference Share

 Preference Shares are for those individuals who desire a fixed income and do not prefer taking risks. 

Shareholders of this type receive the following two preferences: 

1.Preference in Dividend

2.Preference in Repayment of Capital 

Types of Preference Shares 

Preference shares are of the following types.

1.Cumulative Preference Shares: Cumulative Preference Shares are shares where if the dividend is not paid in any year, it accumulates and its demand can be made in subsequent years. 

2.Non-Cumulative Preference Shares:- Non-Cumulative Preference Shares are shares where If dividends are not paid in any year, they are not accumulated. And their demand cannot be made in subsequent years. 

3. Redeemable Preference Shares: Redeemable Preference Shares are shares whose redemption the company performs during its lifetime. 

Note: According to the Companies Act 2013, a company can issue Redeemable Preference Shares only for the period of 20 years

4.Non-Redeemable Preference Shares: Non-Redeemable Preference Shares are shares whose redemption the company does not perform during its lifetime. 

Note: According to the Companies Act 2013, a company cannot issue Non-Redeemable Preference Shares. 

5.Participating Preference Shares: Participating Preference Shares are shares whose holders have the right to receive dividends at a fixed rate and also to share in the company's additional profit. They are called Participating Preference Shares. 

6.Non-Participating Preference Shares: Non-Participating Preference Shares are shares whose holders have the right to receive dividends at a fixed rate but do not have the right to share in the company's additional profit. They are called Non-Participating Preference Shares.