Classes of shares
They carry preferential rights in relation to other classes of shares. The rights relate to dividend and right to receive proportionate parts of capital during winding up. The rights on preference shares may be stated in the Articles of association.
Section 520 provides that a company may issue preference shares which are liable to be redeemed. This is only possible under the following conditions:
They are also referred to as equity capital. The holders of ordinary shares usually carry the main risk of business as they invest their money without assurance that they will be paid interest on their investment. Holders receive dividends out of profit as determined by directors and declared by members in the Annual general Meeting.
They are usually issued to the founders or promoters as a reward for their services. They are entitled to dividends only after other classes of shares.
Although their rights depend on the articles, these shares normally take a larger share of surplus assets during winding up than ordinary shares and they also carry greater voting rights.
A company may have shares issued to employees to encourage them to have a direct interest in the company. This is done through an employee shares scheme managed and administered by a trustee for the benefit of serving employees and those that have rendered exemplary service to the company. Usually employees make no payment for these shares and the shares have no voting rights at company’s Annual general Meeting. They serve as a retirement benefit for employees as they will be able to enjoy dividends and other benefits.
These result from payment of dividends in terms of shares instead of cash. It result in capitalizations of profits which then proportionately increases the shares held by each shareholder.