Commerce: Shares

Shares

• A share is a unit of capital.
• Business capital is divided into several units.
• Owners of shares are called shareholders.

Types (Classes) of shares

Ordinary shares

• Are also known as equities.
• Receive dividends at variable rates which depend on profits made.
• Receive dividends after preference shares have received their dividends.
• Are a form of risky investment because if profits made are not adequate they are not paid any dividends.
• Ordinary shareholders have voting rights at annual general meetings.
• Can be deferred or participating ordinary shares.
• Issued by both private and public limited companies.

“Blue Chips”

• These are ordinary shares of a highly reputable and profit-making public limited company for example Econet Wireless Zimbabwe and Fortune 500 companies.

Preference shares

• Receive a fixed rate of dividends.
• Receive dividends first, before ordinary shares are paid.
• Shareholders have not voting rights therefore less control of the business.
• Are a safe form of investment i.e. less risky investment.
• Can be basic, cumulative or participating redeemable shares.

Basic preference shares

• Receive dividends at a fixed rate if a company has made profits.
• However, if in any given year the company does not make profit, the dividends payable are lost for good.

Cumulative preference shares

• Receive dividends at a fixed rate.
• Receive dividends before ordinary shares receive their dividends.
• Shareholders have no voting rights.
• Dividends not received in one year are carried forward and paid in the following year or later when the company has made enough profits.

Participating preference shares

• Receive dividends at a fixed rate.
• Entitled to a further share of profits dividends paid to ordinary share surpass certain amount.

Redeemable preference shares

• Receive dividends at a fixed rates.
• Issued for a specific period of time.
• Can be bought back (redeemed) by a company at a later date.
• Used to obtain start-up capital for a company.

To access more topics go to the Commerce Notes page.