Q.Explain the classes of shares.

Under the Companies Act, the share capital of a company is divided into two classes: Preference Shares and Equity (Ordinary) Shares. Preference shares enjoy a priority for dividend and for repayment of capital; equity shares rank after them but carry the main voting power and the residual profits.

1. Preference Shares

Preference shares carry two preferential rights over equity shares:

• a right to receive a fixed rate of dividend before any dividend is paid to equity shareholders, and
• a right to the return of capital before equity shareholders when the company is wound up.

They are further sub-classified as: cumulative and non-cumulative (whether unpaid dividends accumulate); participating and non-participating (whether they share in surplus profits); convertible and non-convertible (whether convertible into equity shares); and redeemable and irredeemable preference shares.

2. Equity (Ordinary) Shares

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