Share and share capital are essential concepts in the world of business and finance. Shares represent a unit of ownership in a company, while share capital refers to the total amount of money that a company has received from issuing shares. In this article, we will explore the meaning, nature, and kinds of shares and share capital. Additionally, we will discuss the various rights and duties attached to these shares.
Meaning of Shares and Share Capital
Shares are a unit of ownership in a company. When a company issues shares, it is essentially selling a portion of its ownership to investors. The investors who purchase these shares are called shareholders. The amount of ownership that a shareholder has in a company is proportional to the number of shares they own.
Share capital, on the other hand, refers to the total amount of money that a company has raised by issuing shares. It is the sum total of the nominal or face value of all the shares issued by a company. The share capital of a company is important because it is used to determine the value of the company, and it also serves as a basis for calculating the company’s earnings per share.
Nature of Shares and Share Capital
Shares are a form of equity, which means that they represent ownership in a company. As such, shareholders have the right to vote on important company matters, such as the election of board members and major decisions that affect the company’s operations. Shareholders also have the right to receive dividends, which are payments made to them by the company as a share of its profits.
Share capital is a long-term source of funding for a company. It represents the money that has been invested by shareholders into the company, and it is used to finance the company’s operations and growth. Share capital is also used as a measure of the company’s financial health, as it reflects the amount of investment that the company has received from its shareholders.
Kinds of Shares
There are two main kinds of shares: common shares and preferred shares.
Common Shares
Common shares, also known as ordinary shares, represent the most basic form of ownership in a company. Common shareholders have the right to vote on important company matters, such as the election of board members and major decisions that affect the company’s operations. They also have the right to receive dividends, which are payments made to them by the company as a share of its profits.
Common shareholders are the last in line to receive payments in the event that a company goes bankrupt or is liquidated. This means that if a company has debts to pay, its creditors and preferred shareholders will be paid first before any payments are made to common shareholders.
Preferred Shares
Preferred shares are a type of share that has priority over common shares when it comes to the payment of dividends and the distribution of assets in the event that a company goes bankrupt or is liquidated. Preferred shareholders do not have the right to vote on company matters, but they do have a higher claim on the company’s assets.
Preferred shares can be further classified into various types based on their features, such as cumulative preferred shares, non-cumulative preferred shares, convertible preferred shares, and redeemable preferred shares.
Cumulative preferred shares have a feature where any unpaid dividends accumulate and must be paid before any dividends can be paid to common shareholders. Non-cumulative preferred shares do not have this feature.
Convertible preferred shares give shareholders the option to convert their preferred shares into common shares at a later date. This can be beneficial if the company’s performance improves and the value of the common shares increases.
Redeemable preferred shares give the company the option to buy back the shares at a predetermined price and time.
Rights and Duties Attached to Shares
Shareholders have various rights and duties attached to their shares, which are outlined in the company’s bylaws and shareholder agreements. Some of the rights and duties attached to shares are as follows:
Rights of Shareholders
- Right to vote: Shareholders have the right to vote on important company matters, such as the election of board members and major decisions that affect the company’s operations.
- Right to receive dividends: Shareholders have the right to receive dividends, which are payments made to them by the company as a share of its profits.
- Right to transfer ownership: Shareholders have the right to sell or transfer their shares to another party.
- Right to inspect company records: Shareholders have the right to inspect the company’s financial records and other important documents.
- Right to sue: Shareholders have the right to sue the company or its directors for any wrongful actions that have resulted in financial losses.
Duties of Shareholders
- Payment of subscription price: Shareholders have the duty to pay the subscription price for their shares in full and on time.
- Compliance with company bylaws: Shareholders have the duty to comply with the company’s bylaws and other rules and regulations.
- Duty of loyalty: Shareholders have the duty to act in the best interests of the company and not engage in any activities that could harm the company’s reputation or financial health.
- Duty to attend meetings: Shareholders have the duty to attend shareholder meetings and actively participate in the decision-making process.
Conclusion
Shares and share capital are important concepts in the world of business and finance. Shares represent a unit of ownership in a company, while share capital refers to the total amount of money that a company has received from issuing shares. There are two main kinds of shares: common shares and preferred shares. Shareholders have various rights and duties attached to their shares, including the right to vote, the right to receive dividends, and the duty of loyalty. Understanding these concepts is essential for anyone looking to invest in the stock market or start a business.