The total capital of a company is divided into equal units of small denomination termed as shares. The ownership of these shares is easily transferable, from one person to other, subject to certain conditions. The person who is contributing in the capital in the form of shares is known as shareholder.
Types of Shares As per the Section 86 of the Company Act of 1956, there are two types of shares:
1. Preference Shares: Section 85 of the Company Act, 1956 defines Preference Shares to be featured by the following rights: –
(a) Preference Shares entitle its holder the right to receive dividend at a fixed rate or fixed amount.
(b) Preference Shares entitle its holder the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.
2. Equity Shares: Equity Shareholders have a voting right and control the affairs of a company. As per Section 85 (2) of Companies Act 1956; equity share is a share that is not a preference share. It does not possess any preferential right of payment of dividend or repayment of capital. The rate of dividend is not fixed on equity shares and varies from year to year, depending upon the amount of profit available for distribution after paying dividend to the preference shareholders.
