Ordinary vs Preference Shares

• Shares can be categorized into several types, each with distinct rights and characteristics.

Ordinary Shares

• Dividends are received only when the company makes a profit.
• Higher net profits typically result in higher dividend payouts.
• In the event of bankruptcy or liquidation, ordinary shareholders are the last to be paid.
• Ordinary shareholders have the right to vote at the Annual General Meeting (AGM).
• Ordinary shareholders can attend the AGM to learn about the company's performance.
• Ordinary shareholders receive interim and annual reports.
• Ordinary shareholders have a claim on company assets in bankruptcy after all other creditors and preferential shareholders have been paid.

Preference Shares

• Some preference shares receive dividends regardless of company profitability.
• These shares pay out at a fixed rate of return.
• Dividend payments depend on the specific type of preference share.
• Voting rights may be restricted to specific circumstances or resolutions.
• Preference shareholders have the right to receive dividends, irrespective of profits.
• They are entitled to a fixed dividend rate.
• They are paid dividends first, enjoying preferential rights.
• In bankruptcy/liquidation, they have a preferred claim on company assets.
• They receive interim and annual reports.

Founder's Shares

• Issued to the founders, incorporators, or promoters of the company.
• Dividends are paid after all other shareholders have been paid.

Bonus Shares

• These are payments to shareholders in the form of additional shares.
• Often issued as compensation for unpaid dividends.
• Owning more shares leads to the potential to collect more dividends in the future.
• Shareholders receive these shares without needing to pay for them.

Participating Preference Shares

• Shareholders are guaranteed minimum fixed dividends.
• They are entitled to a share in any surplus company profits.
• Higher dividends are paid when the company performs well.
• They possess preferential rights over ordinary shares on repayment when the company closes.

Non-Participating Preference Shares / Ordinary Preference Shares

• Upon liquidation, shareholders receive an amount equal to their initial investment plus any accrued and unpaid dividends.
• Shareholders lack the right to participate in profits after equity shareholders receive a dividend.
• No extra dividend is given in the event of surplus profits.
• Shareholders are entitled to receive only a fixed rate of dividend each year.

Cumulative Preference Shares

• Shareholders are compensated for past unpaid dividends when profits were insufficient.
• Dividends not previously paid out are received.

Non-Cumulative Preference Shares

• Shareholders do not get compensation for past unpaid dividends when profits were low.

Redeemable Preference Shares

• The issuing firm has the option to buy back shares at a fixed price either on a specific date or during a specific period.

Non-Redeemable Preference Shares

• Shares are bought back only when the company closes for reasons other than bankruptcy.

Convertible Preference Shares

• Shares can be converted into a predetermined number of ordinary shares on a specified date.

Non-Convertible Preference Shares

• Shares cannot be converted into ordinary shares.