State and explain any five classes of shares a public limited company can issue.

Answer Details

Classes of shares a public limited company can issue

A share is a unit of the capital of a company. A public limited company can raise its capital by issuing different classes of shares, each carrying different rights as to dividend, voting and repayment of capital.

1. Ordinary shares (equity shares): These are the main risk-bearing shares of the company. Their holders receive dividend only after all other classes have been paid, and the rate of dividend varies with the level of profit. They carry voting rights and control the company, but rank last for repayment of capital if the company is wound up.
2. Preference shares: These carry a fixed rate of dividend that must be paid before any dividend is paid to ordinary shareholders. Their holders also rank ahead of ordinary shareholders for the return of capital on winding up, but they usually do not carry voting rights.
3. Cumulative preference shares: These are preference shares whose unpaid dividends in a year of low or no profit are carried forward (accumulated) and must be paid in later profitable years before ordinary shareholders receive anything.
4. Non-cumulative preference shares: These are preference shares whose dividend, if not paid in any year because of insufficient profit, is lost permanently and cannot be carried forward to future years.
5. Participating preference shares: After receiving their fixed dividend, holders of these shares are also entitled to share in any surplus profit together with ordinary shareholders, thus earning an extra dividend in very profitable years.
6. Redeemable preference shares: These are preference shares that the company can buy back (redeem) from the holders at a fixed future date or after a stated period, thereby returning their capital to them.
7. Deferred (founders') shares: These are shares usually held by the promoters or founders of the company whose dividend is paid only after all other classes have been paid, but they may then take a large share of the remaining profit.