Types of shares
The Companies Act, 1956 mentions only two types of shares, i.e. equity shares and preference shares.
- Equity shares: Equity Share Capital is also called as “Risk Bearing Capital” of the company and equity shareholders are the real risk bearers of the company. In simple terms, equity shares are those shares that do not enjoy any special right in respect of payment of dividend. Also rate of dividend fluctuates depending on the availability of profits and recommendations made by the BOD (Board of Directors). In the event of liquidation (winding up) of the company, an equity shareholder is the last person to receive back his capital.
- Preference shares: Preference shares are those shares which enjoy priorities in the payment of dividend as well as in repayment of capital. They are entitled to receive a fixed rate of dividend before dividend is paid to equity shareholders. Similarly, they are also repaid the capital before any repayment of capital to equity shareholders.
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