| Shares
and debentures (part 1)
Yvonne
Harvey, Contributor
 |
The
Herbert Morrison High School speaking choir perform during a birthday celebration
for the late Honourable Louise Bennett-Coverley at the St. James Parish Library,
in Montego Bay, recently. - Claudine Housen/Staff Photographer |
Hello my friends.
I guess you are all well rested after the holiday break and ready to move on to
some hard work. You will remember that just before the holiday, we looked at special
types of private companies. All companies need to find ways of raising finance.
There are two major ways of raising capital for private and public limited companies
- shares and debentures. This week's lesson will cover shares as a major way and
next week's lesson will look at debentures. A
share is a part of the capital of a company or cooperative. Shareholders are part-owners
in the business. There are two main types of shares: ordinary shares and preference
shares. Ordinary
shares Ordinary
shares are also referred to as risk capital or equities. They are normally bought
by investors who do not mind taking risks. The rate of interest (dividend) on
ordinary shares is not fixed and dividends are paid out to these investors only
after debenture holders and preference shareholders have been paid their interest
and dividends respectively. Thus,
dividends may be high in one year, low in another and possibly nil the year after
that if the company does not make enough profit. Ordinary
shareholders are given voting rights in companies and cooperatives at their annual
general meetings. For companies, they are allowed one vote per ordinary share.
Therefore, if an investor owns majority shares, he is the decision maker in the
business. For cooperatives, the ordinary shareholder is only allowed one vote,
regardless of the number of shares owned. The
shares of public companies are listed on the Stock Exchange. You may wish to do
some reading on the Stock Exchange to see how it works. Preference
Shares These
are referred to as such since their holders receive preference or favour over
the ordinary shareholders in payment of their dividends. These investors receive
a fixed rate of dividend and are paid before the ordinary shareholders, but after
the debenture holders. They do not, however, have any voting rights at the Annual
General Meeting. There are three main types of preference shares: a)
Ordinary preference shares. These simply receive a fixed dividend out of the company's
profits. b)
Cumulative preference shares. The holder of this type may accumulate dividends
owing to them from previous years, if the profit is enough in another year to
pay them. c)
Participating preference shares. This type may receive a bonus in addition to
their fixed dividend after everyone including the ordinary shareholders have been
paid and there is still some undistributed profit. Persons
who invest in shares will receive a share/stock certificate. This is proof that
they have contributed capital to the company and are, therefore, part-owners.
A share certificate contains very vital information, such as the name of the part-owner,
the type and number of shares purchased, the name and address of the company invested
in, the percentage dividend to be paid (where relevant) and signatures of directors
and the secretary of the company. Such a certificate proves ownership of shares
and should be produced when dividends are to be paid and when the owner wishes
to sell their shares. An example of a share certificate is shown in CXC Principles
of Business - Karlene Robinson and Sybile Hamil, first edition, page 43. Please
do some research on debentures for next week. It
would be good if you could also make some brief notes on this area. See you next
week. | 
