Shares means a share in the share capital of the Company. Basically based on the nature and risk attached, the shares are classified into two;
- Equity shares and
- Preference shares
Equity shareholders are the real owners of the Company. They are having voting rights in the general meeting of the Company. In the event of winding up of the Company, they are having the least preference, i.e., they will get the amount eligible to them after paying off all the liabilities including the amount payable to preference shareholders. The return on equity share capital is not fixed and it will vary according to the performance of the Company.
With repect to preference shares, it enjoys two main preferencial rights over the equity shareholders.
1. They are entitled to a fixed income on the investment made by them.
2. At the time of winding up, they will be settled up before making payments to equity shareholders, but after payment of all other liabilities.
However, they are not entitled to vote at the general meetings/ other meeting except in case of any matter on which their interest is being affected. In short, it can be treated as a quasi-equity instrument and due to its fixed rate of income it can be treated as less riskier than the equity shares.