Corporations can be financed either by shares or by debentures. A share gives ownership of part of the company to an individual. A debenture is a form of loan.<\/p>\n
Shares carry with them a bundle of rights and duties:<\/p>\n
Shares are normally issued with the intention of raising capital. Sometimes shares can be issued in return for assets instead of cash \u2013 this is called \u201cnon-cash consideration\u201d.<\/p>\n
The authorised or nominal share capital<\/strong> is the amount of capital the company is registered with, and is listed in the Memorandum of Association. This is the total of the nominal amounts written on each share. To change the authorised share capital, a special resolution must be passed.<\/p>\n The issued share capital<\/strong> is the amount of the authorised share capital which has been issued.\u00a0 This may not be equal to the authorised share capital if the company has retained some shares.\u00a0 It represents the funding a company has received from its members.<\/p>\n The called-up share capital<\/strong> is the total amount which has been called up from shareholders.\u00a0 If shares do not have to be paid immediately, directors may choose when finance can be called from shareholders.<\/p>\n The paid-up share capital<\/strong> is the total amount which has been paid. The difference between called-up and paid-up share capital is the amount owing from shareholders, which is often zero. Any references to \u2018capital\u2019 in a company\u2019s accounts or business letters must refer to paid-up capital.<\/p>\n Different types of share have different rights. A shareholder is given a share certificate as evidence that they have a certain number of shares. Actual ownership of shares depends on the company\u2019s official register of shareholders.<\/p>\n Ordinary shares<\/strong> carry a right to vote, but have no fixed dividend. The majority of shares in public companies are ordinary shares. Any dividend paid on ordinary shares is determined at the AGM. In addition, when a company is liquidated, if any money is left after all creditors have been paid and shares have been redeemed, then this is shared between ordinary shareholders.<\/p>\n Preference shares<\/strong> do not normally carry a right to vote, but do command a fixed dividend. This dividend takes preference over the dividend paid to ordinary shareholders; that is, when the dividend is decided at the AGM, any dividend due to preference shareholders is removed from consideration. If there is not enough profit to pay preference dividends, generally they are considered cumulative, so any money owing on them is due the next year in addition to the next year\u2019s dividends.<\/p>\n Deferred shares<\/strong> do not generally command a dividend at all until preference shareholders have been paid and ordinary shareholders have received a certain amount. If the dividend paid to ordinary shareholders is below this limit, deferred shareholders receive no dividends. These are uncommon.<\/p>\n Redeemable shares<\/strong> can be ordinary or preference shares. These contain a clause that the company is able to buy back the share at some point in the future. The price which will be paid (or a formula to calculate this) must be specified at the time of issue, as well as a time period during which redemption may take place.<\/p>\n Stock<\/strong> exists where companies have converted paid-up shares into a monetary amount instead of a number of shares.<\/p>\n Each of these types of share can be termed a \u2018class\u2019. Shareholders\u2019 meetings can involve just one class if it is deciding on actions which only affect that class. as described in notes on corporate administration<\/a>.<\/p>\nTypes of share<\/h4>\n
Debentures and Loans<\/h3>\n