(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.
Explanation
(i) Distinction between shares and debentures / ordinary shareholders and preference shareholders
| Shareholders | Debentures holders |
| Holders are owners of a company | Holders are creditors to a company |
| shareholders are paid a dividend | Debenture holders are paid interest |
| Holders have voting rights | Holders have no voting rights |
| Holders receive their dividend after claims of debenture holders have been paid | Holders receive their claims |
| share has no fixed rate of dividend | Holders received fixed rates of interest |
| Ordinary shares | Preference shares |
| Holders receive fluctuating rates of dividend | Holders receive a fixed rate of dividend |
| Dividends are paid only if profits are made | Dividends are paid whether or not profits are made |
| Receive dividends after preference shareholders are paid | First to receive dividend |
| Ordinary shares have voting rights | preference shares have restricted voting rights |
| ordinary shares are not redeemable | preference shares are redeemable |
(b) Reasons for winding up a company:
(i) If the company passes a resolution to wind up.
(ii) If the company fails to commence business within a year after its incorporation.
(iii) If the number of shareholders falls below the statutory level.
(iv) If the company is insolvent.
(v) If the creditors decide to apply for dissolution.
(vi) Continuous disagreement between the directors over the management of the company.
(vii) A company can be wound up by the order of a court.
(viii) If the company’s objective becomes illegal.
(ix) If the company cannot meet up with the capital requirement for the line of business.