Share Capital of a Company
The most common class of share capital is ordinary shares which carry votes. In principle a company may have more than one class of shares, including:
- Voting ordinary shares which carry the right to vote on all matters and to participate in surplus profits or surplus assets on liquidation.
- Non-voting ordinary shares which have similar rights as for above except that the ability to vote is restricted.
- Preference shares, provided that there are profits available for distribution.
- Preference shares are deemed to be cumulative unless they are designated as non-cumulative. Cumulative means that should a company be unable to pay preference dividend in a particular year, the entitlement is carried forward as a memorandum note outside the double entry system. Should available profits arise in a subsequent year, such arrears of preference dividends must be paid in priority to ordinary dividends.
- Participating preference shares are a special type of share. They may have a prior entitlement to a fixed amount of dividend, and then a further entitlement, once ordinary shareholders have received a particular amount.
- Deferred or founders’ shares-such shares carry votes but shareholders are not entitled to dividends until holders of ordinary shares have received a specified dividend. Such shares are fairly rare.