cumulative shares
This query is : Resolved
05 October 2009
hi this is rohin plz give me brief knowledge about cumulative shares, preferential shares, redeemable or irredeemable shares.
Ankur Garg
(Expert)
05 October 2009
Hi,
Find below desired information:
PREFERENCE SHARE
A company limited by shares may, if authorised by its Articles, issue preference shares. This means that a public company or a private company may issue preference shares only if its Articles authorise to do so.
Basic requirements of the preference shares
To qualify the preference share, it should fulfill both the following requirements namely:—
(a) that it carries or will carry a preferential right to be paid dividend of a fixed amount or at a fixed rate; and
(b) that it carries or will carry a preferential right to repayment of capital paid up where or not there is any other preferential right.
In view of the above inclusion of a right to get dividend, whether cumulative or non-cumulative is an inseparable element of preference shares and right to the repayment of capital on winding up.
Where cumulative preference shareholders are entitled to share in surplus of assets on winding up, they are not entitled to preference for arrears of dividend unless there is specific provision for priority to such arrears.
Regards
Find below desired information:
PREFERENCE SHARE
A company limited by shares may, if authorised by its Articles, issue preference shares. This means that a public company or a private company may issue preference shares only if its Articles authorise to do so.
Basic requirements of the preference shares
To qualify the preference share, it should fulfill both the following requirements namely:—
(a) that it carries or will carry a preferential right to be paid dividend of a fixed amount or at a fixed rate; and
(b) that it carries or will carry a preferential right to repayment of capital paid up where or not there is any other preferential right.
In view of the above inclusion of a right to get dividend, whether cumulative or non-cumulative is an inseparable element of preference shares and right to the repayment of capital on winding up.
Where cumulative preference shareholders are entitled to share in surplus of assets on winding up, they are not entitled to preference for arrears of dividend unless there is specific provision for priority to such arrears.
Regards
Ankur Garg
(Expert)
05 October 2009
Types of preference shares
Preference shares may be classified into the various categories and may carry preferential rights as per the provisions of the articles of the company.
1. Cumulative preference shares.—In the case of cumulative preference shares, the shareholders are entitled to receive the dividend for a year which could not be paid due to losses or inadequate profits in the subsequent year(s) whenever there are sufficient profit.
2. Non-cumulative preference shares.—If dividend on non-cumulative preference shares is not paid in any year on account of losses or inadequate profits or otherwise, then the right to dividend for that year is lost and cannot be carried over in subsequent years.
3. Participating preference shares.—These types of shares are entitled to participate in the surplus profit/dividend besides, entitlement to fixed dividend or dividend at fixed rate.
4. Non-participating preference shares.—These types of shares are entitled to receive fixed amount of dividend or dividend at fixed rate but do not have right to participate in surplus profits.
5. Redeemable preference shares.—Section 80(1) provides that a company limited by shares may, if so authorised by its Articles, issue preference shares which are to be redeemed at the option of the company.
6. Irredeemable preference shares.—Section 80(5A) provides that a company shall not issue preference shares which are either irredeemable or redeemable after the expiry of a period of 20 years from the date of its issue.
7. Convertible preference shares.—These shares may be converted into equity shares as per the terms and conditions of their issue.
8. Non-convertible preference shares.—These shares are not convertible into equity shares but have the preferential rights to payment of capital in the event of liquidation of the company or otherwise.
Preference shares may be classified into the various categories and may carry preferential rights as per the provisions of the articles of the company.
1. Cumulative preference shares.—In the case of cumulative preference shares, the shareholders are entitled to receive the dividend for a year which could not be paid due to losses or inadequate profits in the subsequent year(s) whenever there are sufficient profit.
2. Non-cumulative preference shares.—If dividend on non-cumulative preference shares is not paid in any year on account of losses or inadequate profits or otherwise, then the right to dividend for that year is lost and cannot be carried over in subsequent years.
3. Participating preference shares.—These types of shares are entitled to participate in the surplus profit/dividend besides, entitlement to fixed dividend or dividend at fixed rate.
4. Non-participating preference shares.—These types of shares are entitled to receive fixed amount of dividend or dividend at fixed rate but do not have right to participate in surplus profits.
5. Redeemable preference shares.—Section 80(1) provides that a company limited by shares may, if so authorised by its Articles, issue preference shares which are to be redeemed at the option of the company.
6. Irredeemable preference shares.—Section 80(5A) provides that a company shall not issue preference shares which are either irredeemable or redeemable after the expiry of a period of 20 years from the date of its issue.
7. Convertible preference shares.—These shares may be converted into equity shares as per the terms and conditions of their issue.
8. Non-convertible preference shares.—These shares are not convertible into equity shares but have the preferential rights to payment of capital in the event of liquidation of the company or otherwise.
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