2. The keys

   1. Brief Summary

1. A company or a business corporation is operated by individuals.

2. Its shares of ownership are presented by stock certificates.

3. A person who owns a stock certificate is called a stockholder (shareholder).

4. The basic rights of the shareholders are:

   1. To attend the general meeting hold annually at which financial statements and directors’ reports are considered.

   2. To vote for directors and thereby to be represented in the management of the business.

   3. To share in profits by receiving dividends.

   4. To share in the distribution of assets if the company is liquidated.

5. The term “shareholder’s funds” is synonymous with the term “owner’s equity”.

6. The capital of a company is equal to the excess of assets over the liabilities.

7. There are two main types of the corporate capital:

   1. the capital accumulated through profitable operations

   2. the capital contributed by the shareholders.

8. The other types of capital include retained earnings, authorized capital and issued capital.

1. Abstract

The main notions of “a shareholder” and “shareholder’s funds” are disclosed in the text. The basic rights of the shareholders are enumerated. The classification of the corporate capital into various types is described.

1. Text III

2. Companies: types of shares

0rdinary and preference shares.

In order to appeal to as many investors as possible, a company may issue more than one kind of shares; just as an automobile manufacturer may make various sedans and station wagons in order to appeal to various groups of car buyers. When only one type of share is issued, it is called an ordinary share. Ordinary shares have basic rights previously mentioned. Whenever these rights are modified, so that certain shareholders are given preferential rights, the term “preference share” is used to describe this second type of share. A few companies issue two or three classes of preference shares, each class having certain distinctive features designed to interest a particular type of investor. In summary, we may say that even if the company of the type discussed here has ordinary share capital, many companies also issue preference shares, and a few companies issue two or more types of preference shares.

An ordinary share may be regarded as the basic, residual element of ownership. It carries voting rights and, therefore, is the means of exercising control over the business. Ordinary shares have unlimited possibilities of increasing value; during the last decade the market prices of ordinary shares of many leading companies rose to three or four times their former values. They have also fallen spectacularly in the last decade as a result of economic conditions. The rise or fall in an individual company’s shares may of course be due not only to general economic conditions but also to the market’s anticipation of its future performance. Ordinary shares lose value more rapidly than other types of securities when companies encounter periods of unprofitable business.

The holders of preference shares are granted special rights and privileges, as set out in the memorandum or articles. Quite commonly, the distinctive features of such shares are:

1. Preference to dividend at a certain rate, in priority to the holders of other classes of shares. Preference shares are ”Prima facie” preferential as to dividend.

2. Priority to return of capital in the event of the winding up of the company in priority to holders of other classes of shares.

3. No voting rights.

The shareholders’ equity section, given below, illustrates the balance sheet presentation for a company having both preference shares and ordinary shares.