Page 22 - Ebook Financial Accounting 3

Classes of shares

Cumulative & non-
Equity shares
cumulative

Classes of Shares

Preference shares Participating

Convertible

Figure 2.2

➢ Equity or Ordinary Share

✓ These shares have voting rights.
✓ It doesn’t offer a fixed rate of return.

✓ They are not entitled to get capital on winding up, before paying to preference

shareholders

➢ Preference Shares
✓ It offers a fixed rate of dividend.

✓ Right to get capital on winding up, before anything is paid to equity shareholders.
✓ Under preference shares, there have several types of it which is:

• Cumulative preference shares- Carry the right to receive dividends in

arrears
• Non-cumulative preference shares – Shareholders receive the fixed

dividend only when the company has sufficient profit to declare dividend.

• Participating preference shares – the holder have a right to receive
additional dividends beyond a specified amount and

• Convertible preference shares – the holder have the right to be converted

into equity shares at a specific rate of conversation.

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