Question

Explain the following; I. Issued Shares II. Preference Shares III. Ordinary Shares IV. Debentures

Answer 1

1. Issued Shares

A company is registered with the amount of maximum authorised capital it can raise from the public in total. Issued Shares are the part of authorised share capital which is being issued by the company for purchase by the general public either in the form of Initial Public Offers. In nutshell issued capital is that part of the capital which is sold by the company for the purpose of raising funds and it can be held by any individual investor, corporate investors, financial institutions etc.

2. Preference Shares

Company has two forms of share capital Equity Share Capital and Preference Share Capital.

Preference Shares are those shares which enjoys some special rights on comparison to Equity Shareholders.The investors who own preference Shares get a preferred right to get their dividend before equity shares and that too at a pre determined rate. Moreover in the case of financial instability conditions like liquidation preference Shares get a preferred right to get the repayment of their capital base before equity share capital.

3. Ordinary Shares are those shares the owners of those in true sense are a part of owners of the company. They get a special right to participate and vote in the meetings of the company. They get their share of profit after the payment of preference share capital is done and there is no dividend in case of loss.Moreover equity shareholders are entitled to get their share of capital after all the payments being done in the event of liquidation of the company.

4. Debentures are debt instruments that are being issued by the company to raise funds unsecured by collateral. When an organization issues debentures there is usually an agreement which ensures that the debentures get the fixed return on their investments at a fixed rate of interest and that too at regular intervals. They are more secured than the share capital of the company. They are issued for a fixed period of time after that they can either choose to be redeemed or an option to be converted into the share capital.of the company. They hold a preference of repayment in the event of liquidation.