Module 1
1= Types of Preference Shares
Preference shares are a type of share that gives shareholders a fixed dividend before equity
shareholders. They also have a priority in repayment if the company shuts down.
1. Cumulative Preference Shares – If the company cannot pay dividends in a year, it
carries forward to the next year(s) until paid.
2. Non-Cumulative Preference Shares – If dividends are not paid in a year,
shareholders cannot claim them later.
3. Participating Preference Shares – Shareholders receive a fixed dividend and an
extra share of profits after equity shareholders get their share.
4. Non-Participating Preference Shares – Shareholders get only a fixed dividend and
no share in extra profits.
5. Convertible Preference Shares – These shares can be converted into equity shares
after a certain period, giving shareholders voting rights.
6. Non-Convertible Preference Shares – These shares cannot be converted into equity
shares and remain preference shares until repaid.
7. Redeemable Preference Shares – The company repays these shares after a certain
period or as per agreement.
8. Irredeemable Preference Shares – These shares stay with the company forever
unless the company chooses to repay.
2 =Types of Debentures
Debentures are long-term loans taken by a company that pays fixed interest to investors.
They do not give ownership rights but are an important source of finance.
1. Secured Debentures – These are backed by company assets (like land, machinery) as
security. If the company fails to repay, the asset can be sold to recover the amount.
2. Unsecured Debentures – These do not have any asset as security. Investors rely only
on the company’s creditworthiness.
3. Convertible Debentures – These can be converted into equity shares after a
specific period, allowing debenture holders to become shareholders.
4. Non-Convertible Debentures – These cannot be converted into shares and remain as
debt until maturity.
5. Redeemable Debentures – The company repays these debentures on a fixed date or
in installments.
6. Irredeemable Debentures – These do not have a fixed repayment date and are repaid
only when the company decides or shuts down.
7. Registered Debentures – The holder's name is recorded in company records, and
the debenture can only be transferred with proper documentation.
8. Bearer Debentures – These do not have names recorded, and whoever holds the
debenture certificate can claim the interest.
3= Main Categories of Share Capital in a Company
A company’s share capital is divided into different categories based on its usage and
accounting. The main types are:
• Authorized Capital – The maximum capital a company can issue as stated in its
Memorandum of Association. It sets the upper limit for share issuance.
• Issued Capital – The portion of authorized capital that the company offers to
investors. The remaining part is called Unissued Capital.
• Subscribed Capital – The part of issued capital that investors agree to buy. If some
shares remain unsold, it is called Unsubscribed Capital.
• Called-up Capital – The amount of subscribed capital that the company has asked
shareholders to pay. Payments are usually collected in stages.
• Calls in Arrears – If a shareholder fails to pay the called-up amount, it is recorded as
calls in arrears.
• Paid-up Capital – The portion of called-up capital that shareholders have actually
paid. It represents the real funds received by the company.
• Reserve Capital – A part of capital that the company decides to keep aside, to be
called only in case of liquidation.