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Chapter 3 Shares, Debenture and Charges
1. Definition of shares
- A portion of its capital to enable the shareholder for sharing a profit.
- Represent the interest of shareholders in the companys assets which can be value by a
sum of money.
- Sec 4(1) - share in the share capital of a corporation and includes stock except where a
distinction between stock and shares is expressed or implied.

2. Rights of shareholders
- Receiving any declaration for the class of shares.
- The right to vote unless the share has no right to vote.
- At the time of dissolution, shareholders have the right to receive the assets attributable to
the numbers according to the class of shares.
- The right to receive notice calling for meeting.

3. Classes of shares
a. Ordinary shares
- Equity share / not a preference share
- Dividend is paid after the dividend on fixed rate has been paid on preference shares.
- Most widely issued shares.
- Voting right and controlling the policy of the company.
- No fixed rate of dividend.
- Dividend rate depend on the amount of profit earned by the company.
- At the time of liquidation, ordinary shareholders are the last to receive the assets.

b. Preference shares
- Those shares which carry with them preferential rights for their holders
- Do not have voting rights.
- Fixed rate of dividend.
- Priority as to payment of dividends.
- Priority of repayment of capital during liquidation of the company.

4. Type of Preference shares
a. Participating preference shares
Allowed the shareholder to get the surplus dividend despite the fixed dividend if the is
surplus profit after dividend had been paid to the ordinary shareholder.

b. Cumulative preference shares
If in any year a dividend is not paid, it goes on cumulating till it is all paid.

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Non-cumulative preference shares
A failure through a fall in profit inn one year to pay the fixed rate of dividend does not
carry the dividend as cumulate.

c. Convertible preference share
The owners of these shares have the option to convert their preference share into equity
shares with the option of the shareholder.

d. Redeemable preference share
There are to be purchased back by the company after a certain period as per the terms of
issue.

5. Deferred or founder share.
Those shares on which the payments of dividend and capital is made after money is paid in
full on preference shares and equity share.

6. Preference vs. Ordinary share.
Criteria Preference Shares Ordinary Shares
Dividend Fixed rate of dividend No fixed rate of dividend
Dividend paid
Priority as to payment of
dividend
Dividends will be paid after
the dividend payable to
holders of preference shares.
Voting rights Limiting voting right Full voting right
Liquidation
Priority of repayment of
capital
Ordinary shareholders are the
last to receive the repayment
of capital.


7. Capital
a. Authorized capital / Nominal capital
Capital which enables the company to be register and operate.

b. Issued capital
Part of the authorized capital of a company which has been issued to its shareholders

c. Paid up capital
Part of the issued capital which has been fully paid up by the shareholders.

d. Reserve capital / Uncalled capital

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Balance of the capital which has not been paid by shareholders.

8. Dividend
One of the financial returns which a shareholders may receive from his/her investment in the
shares of a company.

9. Type of dividend
a. Interim dividend
- Declared by director when they believe with financial position of the company.
- Paid before end of financial year or before the annual meeting
- If the companys financial position change after declaration of interim dividend, director
can cancel the issuing of the interim dividend in any time.

b. Final dividend
- Declaration made after the profit achieved for the ending profit period end.
- It is companys debt on shareholders.
- Shareholders can force the company to pay the dividend.

c. Accumulated dividend
Total dividend payment for a financial year that carried over to next year or the coming
year.

d. Non Accumulated dividend
Total dividend for one profit year only.

10. Types of debentures
a. Single debentures
- Documents that guarantees loans made by the company with the bank
- Loans secured by fixed or floating charge over company assets.
- A condition of loan repayments is made through a contact agreed by both parties.
- Automatic payments can be requested in the event of liquidation.

b. Public / series debentures
- Debentures issued to the public
- Company which issued debentures to public shall appoint a trustee to the debentures
holder
- Trustee should make sure the company asset or the guarantor was sufficient to pay the
corporate debt.
- Duty violation will cause the trustee liable under the law.

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11. Type of charges
a. Fixed charges
- Charge that attaches to a specific property of a company.
- Example, land or machine.
- Once company made fixed charges in company assets, company does not have the power
anymore to trade with that asset except get approval from charges holder / company
creditor.

b. Floating charges
- Not a specific charge on the assets of a company.
- Can be created against all the property of the company whether present or future.
- The company still having power to transact with the assets.