DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : N. Ramachandra Reddy

Designation : Head of CCP
Branch : DCCP
Institute : G.P.W; Warangal
Year/Semester : DCCP I YEAR
Subject Code : 104 Business Organization
Topic : Raising the Capital for Joint Stock
Company
Duration : 50 Mts
Sub Topic : Various types of shares
Teaching Aids : PPT, Pictures, Animations

CCP104.65 1
0BJECTIVES
 On completion of this period, the student will be able
to know

 Various types of shares

 Deferred shares
 Preference shares
 Equity Shares

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RECAP
 Public Limited Companies require fixed capital to
purchase land and buildings, plants and machinery
etc.
 They also require working capital to purchase raw
materials, to meet day-to-day expenses etc.
 Capital of a company is classified as nominal
capital, issued capital, subscribed capital, paid up
capital etc.

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SHARES
 The authorized capital of a company is divided into
units called shares with a definite face value.
 Holders of these shares are called shareholders or
members of the company.
 Shares are offered to the public for subscription .
 A share is an indication of interest in the company.

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Shares:

 Section-2 (46) of the Indian Companies Act defines

the term share as “ a share in the share capital of
the company”.

 The share Capital of the company is meant for long

term requirements during the life time of the
company.

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SHARES
 In the words of Justice Farewell,” A share is the
interest of the shareholder in the company
measured by a sum of money for the purpose of
liability and of interest (dividend). It also consists
of other rights given by the Articles”.
 Those who buy the shares of a company are the
owners of that company and known as
shareholders. They have certain rights for their
holding of shares .
 Shares are known as ownership securities.
CCP104.65 6
Features of a Share:
b) It is a sub-division of the capital of a company
measured by a sum of money.
c) Each share has a distinct number for identifying
its holder.
d) A share confers certain rights on its holder.
e) A share certificate is issued to the shareholder
under the seal of company.
f) Each share is assigned a nominal or face value
which is paid by its holder.
g) Every year dividend is paid out of profits to
shareholder

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Types of Shares

 The shares issued by a Company can be broadly

divided into three types. They are:

 1) Deferred Shares

 2) Equity Shares

 3) Preference Shares

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Deferred Shares:

 These shares are also known as Founders Shares

or Management Shares, i.e., these shares are held

by the founders of the company.

 These shares are usually issued to promoters or

founders of the company in consideration of their

valuable services towards formation of the
company.

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Deferred Shares:

 These shareholders will receive dividend only after

preference and equity shareholders.

 At the time of winding up of company they receive

their capital in the last.

 The Indian Companies Act 1956 prohibited the

issue of deferred shares by a public limited
company from 1st April, 1956.
 Shares issued prior to this date remain valid.

CCP104.65 10
Equity Shares:

 These shares are also called as ordinary shares.

 Equity shareholders do not enjoy any special rights.

 The equity shareholders get dividend after payment of

dividend to preference shareholders and debenture
holders.

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Equity Shares:

 In the event of winding up of company, they will get

their capital only after preference shareholders are
paid back their capital.

 Equity shareholders possess voting rights and hold

control over the affairs of the company.

 If the business is successful, they get dividend.

 The rate of dividend is not fixed.

 Hence, the dividend on these shares changes with

the fortunes of the company.
CCP104.65 12
Equity Shares:
 The position of the equity shareholders is
summarized below.

a) They subscribe to the share capital of a

company without any special security for their
investment.

b) They can not claim any priority in payment of

dividend.

CCP104.65 13
Equity Shares:

c) The rate of dividend on their investment depends

upon the recommendation of Board of Directors.

d) They are entitled to vote at the general meetings of

the company. Voting rights are based on the

principle of ‘one share one vote’

CCP104.65 14
Equity Shares:

Equity shareholders are the real risk bearers of a

company.

 They provide venture capital for the company

without insisting on any special conditions for the

safety of their capital or the rate of return on their

investment.
CCP104.65 15
Equity Shares:
 If the business proves successful and yields
handsome profits, the equity shareholders
will get higher dividend.
 But, a company does not earn enough, they
may not receive any dividend at all.
 Thus, they share in the prosperity of the
company and also bear the risk of
uncertainty.

CCP104.65 16
SUMMARY

 The share capital of a company is divided into small units

called shares.

 A person who purchases shares of a company is called as

a shareholder.

 There are three kinds of shares issued by a company.

CCP104.65 17
 Deferred shares are also known as founders
shares.

 Companies are not issuing these shares since 1st

April, 1956.

 Equity Shares are also known as Ordinary Shares.

 They do not have any special claim over the profits

of the company.

CCP104.65 18
QUIZ

CCP104.65 19
1. Companies are not issuing Deferred Shares since

A) 1st April, 1976

B) 1st April, 1996

C) 1st April, 1956

D) None of the above

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2. The capital of a company is divided into small units called.

A) Dividends

B) Prices

C) Shares

D) None of the above

CCP104.65 21
3. Out of the profits earned, dividend should be first paid to

A) Manager

B) Board of Directors

C) Ordinary Shareholders

D) Preference Shareholders

CCP104.65 22
 Frequently asked questions.
Q1. Explain:
1) Equity Shares
2) Deferred Shares

Q2. List out different types of shares issued by a

company?

Q3. Briefly explain different kinds of shares issued by a

company?
.
CCP104.65 23
ASSIGNMENT
Q1: Name the types of shares which a public limited
company is permitted to issue?

Q2: Explain the differences between Equity Shares

and Deferred Shares?

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