by Shares are a type of securities that represent ownership in a company. When a company issues shares, it is effectively dividing its ownership into small units that can be traded by investors in the open market. Shares are commonly used by companies to raise capital, as investors purchase them in exchange for a portion of ownership and the potential for future profits.
A share is a unit of ownership in a company that represents a claim on a portion of the company’s assets and earnings. The ownership is divided into small units, each of which is represented by a share. Shareholders are entitled to vote on important company decisions, such as the election of the board of directors, as well as to receive a portion of the company’s profits in the form of dividends.
Types of Shares
There are different types of shares that a company can issue, each with its own unique characteristics. Some of the common types of shares include:
Equity Shares
Equity shares are the most common type of shares issued by companies. They represent ownership in the company and entitle shareholders to a portion of the company’s profits, as well as voting rights in company decisions. Equity shareholders are last in line for payment in the event of liquidation, after all other creditors have been paid.
Preference Shares
Preference shares are a type of share that gives the shareholder preferential treatment over equity shareholders in terms of dividends and liquidation proceeds. Preference shares typically have a fixed rate of dividend that is paid out before any dividends are paid to equity shareholders. In the event of liquidation, preference shareholders are paid before equity shareholders.
Cumulative Preference Shares
Cumulative preference shares are a type of preference share where any unpaid dividends accumulate and must be paid before any dividends are paid to equity shareholders.
Redeemable Shares
Redeemable shares are shares that can be bought back by the company at a later date, either at a fixed price or at market value.
Participating Shares
Participating shares are a type of equity share that gives the shareholder the right to receive a portion of the company’s profits in excess of a certain level.
Allotment of Shares
Allotment of shares refers to the process by which a company issues new shares to investors. The allotment of shares can be done in a variety of ways, including through public offerings, private placements, or rights issues. The process of allotment typically involves the following steps:
Authorization
The first step in the allotment of shares is for the company’s board of directors to authorize the issuance of new shares. The board must ensure that the company has the necessary authority under its articles of association and other relevant laws to issue new shares.
Prospectus
If the shares are being issued to the public, the company must prepare a prospectus that provides information about the company, its business operations, and the risks involved in investing in the company.
Application
Investors who are interested in purchasing shares must complete an application form, indicating the number of shares they wish to purchase and the price they are willing to pay.
Allotment
Once the company receives applications for shares, the board of directors must determine the allotment of shares. This involves deciding how many shares will be issued and to whom they will be issued.
Payment
After the allotment of shares has been determined, investors must make payment for the shares they have been allotted. This can be done through a variety of methods, including cash, cheques, or electronic transfers.
Share Certificates
Once payment has been received, the company must issue share certificates to the investors. Share certificates are legal documents that provide proof of ownership of the shares.
