Share Capital and Classes of Shares

Share Capital and Classes of Shares

The share capital of a limited company is the money subscribed by the shareholders of the company. The different kinds of share capital are


1. Registered capital
 
- Also known as nominal or authorised capital


- Represents the maximum value of shares a company is allowed to issue


2. Issued capital
 
- Actual value of shares that has been issued to the Public


- Can be equal to but not more than the authorised capital
 
 
3.Called – up Capital
 
- The actual amount of money that has been asked to be paid by the shareholders
 
 
4. Paid – up Capital
 
- The actual amount the shareholders have paid on the called up capital
 
 
There are three common classes of shares issued by companies. There are:-

 
1.Preference shares
 
- This forms the preference share capital of the company


- They are the first to receive dividends

- Can be cumulative preference shares who are eligible for arrears of dividends if no dividend is given for one or more years or non-cumulative preference shares who are not eligible for arrears of dividends



2.Ordinary shares
 
- This forms that ordinary share capital of the company which is usually the largest form of capital


- They are entitled to receive dividend only after the preference shareholders are paid

- They are eligible to vote when electing board of directors


 
3.Deferred Share
 
- These are shares taken up by the founders or promoters of the company
 
- They are only entitled for dividends after all the other shareholders are paid
 
 

Share Dividends

 
 The distribution of the profits of a limited company is called the payment of dividends



 The amount of dividend to be paid depends on


1. The number of shares held


2. The nominal value of each shares


3. The type of shares


 Preference shareholders are entitled to a fixed rate of dividend


 The rate of dividend for ordinary shares depends on profits made by the company. If there is no or insufficient profits, therefore there won’t be any dividend


 Dividends when paid during the year before the annual final accounts are prepared are called Interim Dividends while those paid at the end of the year are called Final Dividends

The Stock Exchange

 It is a place where shares, stocks and securities are bought and sold


 People are interested in buying shares of public companies because


1. They can earn dividend


2. Shares are a form of investment


3. They can sell them freely through the stock exchange



 Share – brokers are members of the stock exchange through whom the public can buy and sell shares


 He is paid commission for these services


 The speculators in a stock exchange can be


1. A bull who can make profits if price of shares rise before the settlement day


2. A bear who can make profits if share price fall before the settlement day


3. A stag who buys shares that are going cheap in bulk and sells them when prices increase