State and explain any five classes of shares a public limited company can issue.
Explanation
Different classes of shares a public limited company can issue are:
(i) Ordinary shares
(ii) Cumulative preference shares
(iii) Preference shares
(iv) Participating preference shares
(v) Redeemable preference shares.
(vi) Differed or founder’s shares.
(i) Ordinary shares; are also known as ” equities” as they rank equally. Holders are the real owners of public limited companies. They receive dividends only after other fixed interest holders have been paid. Holders of ordinary shares can vote and be voted for. Ordinary shares are not redeemable and there is no fixed rate of dividend.
(ii) In cumulative preference shares; the holders have priority in the share of dividends over others. They get arrears of dividends not paid before other classes get dividends. The holders have no voting rights. The shares receive the fixed dividends.
(iii) Preference shares; have fixed rate of dividend. The owners receive dividends first before all others. The holders are also entitled to return of capital first at winding-up. Holders have no voting rights.
(iv) Participating preference; shares receive a fixed rate of dividend like other preference shares. They also get dividends first before the ordinary shares. They are entitled to further dividends after the ordinary shares have received a specified percentage of the profits.
(v) Redeemable preference; shares have prior claims before all other preference shares. They have the disadvantage of being bought back by the company. Hence, the name, redeemable. The companies use their profits or proceeds of further issue: shares to buy back these shares. These types of shares are issued to finance particular projects to be repaid when the project is completed.
(vi) Differed or Founder’s shares; are issued to the founders of the company. They are no longer common in public limited companies. Holders have the right to the remaining profit after ordinary shares have received the stated amount. They are often issued as part payment to the owners of a company that have been bought up.