What are the different types of preference shares? There are four main types of preference shares: Cumulative and non cumulative shares, redeemable and non-redeemable shares, convertible and non-convertible shares, participating and non-participating stocks. Shareholder of preferred common shares receives a fixed dividend for the years the company made a profit. Shareholder of cumulative preferred shares receives a dividend regardless of whether the company made a profit. A redeemable preference shares are liable to be redeemed at a fixed time. Convertible preference shares are corporate securities (of fixed income) that the shareholders can convert into a certain number of ordinary shares after a certain period of time. Participating preference shares are entitled to a dividend (fixed and preferential) and can participate in the extra profits after payment of certain rate of dividend on equity shares.
Preferrence type of shares have their advantages and disadvantages. Individual rights arising from shares (dividend, management, distribution) can exist in various combinations, such as the right to a fixed dividend, but without voting rights, etc. Company statute allows for the issuance of ordinary shares without the right voice. There is nothing more important for the investor, because the most common motive for the purchase of shares is a capital investment or speculation, not a desire to gain power in the company. There is also a group on the market that is purchasing the shares, wanting to take control of the company.
To attempt to manage the company being a shareholder, you should theoretically take out 50 % of the shares, i.e. control package. In fact, less is enough, eg 15 % of the shares in order to direct the company. It uses the fact of a distraction of the rest of shares between small shareholders. The possession of these types of preference shares affects the rights of a shareholder who owns them. This range is different than in case of the ordinary shares.
In case of issue of the “new” shares to increase the capital of the company, owner of the “old” shares obtains the rights to subscribe designated number of “new” shares at favorable prices. Shareholder may benefit from subscription rights or not. If he doesn’t benefit, he may sell those rights. Consequently, the pre-emptive rights could also be traded on financial markets.
Issue of shares increases capital of the company. Shares are issued only in equal value. The share is indivisible. There is one exception to this rule – the so-called “split”. Split is a share split in equal parts – mostly two. This action is performed to reduce the price of the shares and thus increase the range of buyers. Existing holders of shares have since then appropriate multiples thereof (eg, two times more). Financial status doesn’t change. Double number of shares is worth the same as the original package before the division. The rule one share = one vote applies to non-voting shares also. Its holder has no effect on the management of the company. Moreover, it is worth noting that in many countries, access of foreign investors to the stock of a country can be difficult.