Share certificate. Image credit genafashion.com

Share certificate. Image credit genafashion.com

ZIMSEC O Level Commerce Notes: 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.

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