(a) State three differences… | Commerce

Question 1 Report

(a) State three differences between:
(i) shareholders and debenture holders.
(ii) Ordinary shares and preference shares.

(b) Explain four reasons for winding up a public limited company.

Answer

Answer Details

(a) Differences

(i) Shareholders and debenture holders

Shareholders	Debenture holders
Owners of the company.	Creditors (lenders) to the company.
Receive dividend which depends on profit.	Receive fixed interest whether or not profit is made.
Have voting rights and can control the company.	Have no voting rights in the company.

(ii) Ordinary shares and preference shares

Ordinary shares	Preference shares
Dividend varies and is paid after preference shareholders.	Receive a fixed rate of dividend, paid first.
Carry voting rights.	Usually carry no voting rights.
Paid last on winding up (bear the greatest risk).	Repaid before ordinary shareholders on winding up.

(b) Four reasons for winding up a public limited company

When the company is insolvent and unable to pay its debts.
When the objectives for which it was formed have been achieved or become unlawful.
By order of the court following fraud or serious mismanagement.
When the members pass a special resolution to wind it up voluntarily, or the number of members falls below the legal minimum.

(a) State three differences between: (i) shareholders and debenture holders. (ii) Ordinary shares and preference shares. (b) Explain four reasons for windin...