Share and Share Capital
Share capital refers to the amount of money that shareholders have committed to the company. Share capital can be issued with or without full payment from shareholders. The minimum issued share capital is $1 when you incorporate a company. “Paid up capital” refers to the amount shareholders have paid to the company for their shares.
What is a Share?
A share is a portion of the company which belongs to a shareholder in exchange for his financial contribution towards the company’s share capital. A share may be fully or partially paid up.
By paying for the shares, an investor is buying partial ownership of a company. A shareholder may be an individual, a company or a limited liability partnership.
Types of Shares
A company may issue different types of shares for various reasons. Common reasons include:
- Keeping the control of the company to certain individuals.
- Offering shares with preferential dividend rights to encourage investment.
- Having different entitlements to company funds in the event the company winds up.
- Accommodating the varied needs and preferences of different investors.
Ordinary Shares
Ordinary shares are the most common type of shares. They typically carry voting rights and will receive dividends after shareholders who own preference shares have received their dividends. Companies may divide their ordinary shares into different classes (e.g. “A” and “B”) with different rights attached to each class.
Preference Shares
In general, preference shares are shares that rank ahead of other shares either as to dividends or capital or both, but which carry limited voting rights. They are normally fixed-income shares and do not usually participate in the success of the company. Consequently, they are considered to be a less risky form of investment than ordinary shares. The exact nature of preference shares and the rights attached to them are usually set out in the company's Constitution.
No company may allot any preference shares or convert any issued shares into preference shares unless there are set out in its constitution the rights of the holders of those shares with respect to repayment of capital, participation in surplus assets and profits, cumulative or non-cumulative dividends, voting and priority of payment of capital and dividend in relation to other shares or other classes of preference shares.
