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SHARES OF A COMPANY
A share or stock is a unit in which the capital of a company is divided.
OR
A share is a unit or portion of capital to raise funds
The money raised through the sale f shares is known as hare capital” profits distributed to shareholders are known as “dividends. Holders of shares are called shareholders or members of the company
Types of shares
(i) Ordinary /Equity shares
(ii) Preference shares
(iii) Deferred shares
1.Ordinary /Equity shares
These are shares held by real owners of Company/These shares are held by persons who are full responsible for the debts of the company.
In case the company is dissolved ordinary share have the last claim on the properties of the company. These type of shares give their holders the power to formulate policies for the company.
Characteristics of ordinary shares
i. They do not carry a fixed rate of return. The amount of profit allocated to them depends upon what remains after all the creditors and shareholders with prior claim have been paid.
ii. The owner of shares receives a dividend on them only if there is sufficient profit. If profits are two low or if there is a loss the company may not pay a dividends. When profits permit, each
shareholder will receive an equal amount for each ordinary share held.
iii. When the company is bankrupt, share hold will be paid if at all in only after all other debts have been paid
iv. There is no special security for such investments other then the soundness of the company
v. In exchange for the risk, the ordinary shareholder the ultimate control of the company, in that they have one vote for each share when it comes t electing the board of directors. Who are
responsible for the general policy of the company
vi. In good years shareholders may receive higher rates of dividends than other shareholders but in bad years there may be no return ate all
vii. When the Company is winding up, the shareholders are paid money after the other shareholders and creditors.
viii. Ordinary shares are the most important and popular type of shares, It is therefore called a entire capital of the company
ix. The rate of divided on ordinary shares depends upon the profit of the Company.
x. The ordinary shareholder to not create any change on the assets of a company
xi. No burden on company resources since the dividend is t be paid out of the profit of the company, there fore they impose no burden on the resources of the company.
N.B The great risk of business falls upon the ordinary shareholders because.
They have no fixed rate of dividend.
The amount of profits allocated to them depends upon what remains after all the creditors and shareholders with a prior claim have been paid.
(ii) There is no special security for this investments other than soundness of the company
(iii) IN good years they may receive higher rates of dividends than the other shareholders but in bad years there may be no return at all.
(iv) In good years they may receive higher rates of dividends than the other shareholder but in a bad years there my a been return at all.
2. Preference shares
Preference shares, as the name suggests have certain preferential rights or privileges in respect of the payment of dividend or repayment of capital as compared to other types of shares.
Characteristics f preference shares
(i)They earn a fixed of dividend, say 5% or 10% preference shares
(ii) They have first priority in sharing dividends
(iii)In case of insolence the holder of preference shares receive their proceeds before ordinary shareholders
(iv)The dividends paid are higher than in case of ordinary shares.
(v)Those too are held by the owners of the Company and form part of the Company capital with a fixed rate of dividend.
(vi)Most preference shareholders have no say in the control of the Company, as they have a privileged position as respect to dividends.
Types of preference shares
(a) Cumulative preference shares, These are type of shares which are entitled to a fixed rate of dividend till they are paid, Holders of these are assured of their dividends every year. If a Company does not
pay dividend in one trading year, then payments are carried forward t the next year, In other words, dividends keep on accumulating till paid.
Holders of these are assured of their dividends every year. If a company does not pay dividend in one trading year, then payments are carried forward to the next year. In other words, dividends keep on
accumulating till paid. That is to say if there are no dividend paid this year, next year or the next year after that the amount has to be paid.
(b) Non cumulative preference shares, This will be entitled to a fixed rate of dividend, but only for the year for which a dividend is declared. Otherwise, it does not accumulated and arrears are not carried
forwarded.
(c) Redeemable preference shares, These are shares offered by the Company for sale to the public but they can be bought back or repossessed by the company when necessary or after a specified period
of time. The shareholders are paid a high rate of interest when such shares are taken away from them. These are issued when the company wants more money temporarily.
(d) Irredeemable preference shares
These are shares offered to the public for sale and cannot be reposed or bought back by the company under any circumstances. If a shareholder wants to leave the company and wants his money back, he can sell his shares t the public
(e)
Participating preference shares
These carry a fixed rate of dividend and the holders are entitled to any extra profit which rains after all shareholders have received their dividends
(f) Guaranteed Preference shares
These shares are guaranteed for a fixed rate of dividend by a third party. If the profits of any one year are no sufficient to pay such dividend, the guarantor (s) have to pay the same off their private resources
(g) Convertible Preference shares
These are those shares which the holders can convert into equity (ordinary) share at specified period of time. The right of conversions to be authorized by the Articles of Association of the Company
3. Deferred shares
Here the business my want to convert to public limited company and with to retain powers of control and right to high profit. Thus they create a class of deferred shares giving them special voting powers and the rights to dividends
TERMS USED IN THE SHARE MARKET
  1. Share at par
This is when the money offered for purchase is equal to the face value of the value. For example if the face value nominal value of share is Tshs. 400, the amount offered for sale is Tshs 400. A share is above par, if it sells more than its nominal value and . A share is below par if it seller less than nominal value.
  1. Share at perineum
This is when the price paid for that share exceed the value of that share e.g the value of share is Tshs 500 and it is offered for Tshs. 600
Reasons why company decide to sell shares at premium
(h) Company finds it fair to sell shares to the existing share holders who may have paid more than the par value of their shares.
(i) Company might want to intercept parts of the company profits that would have gone to the speculators.
(j) The books of accounts require the premium to be shown separately in share premium account and not share capital account
(k) Premium is not trading profit therefore it may not be distributed as dividends it can be used to write off preliminary expenses, write off commission or debentures on issue of shares and raising new cash
from shareholders
FEATURES OF RIGHT ISSUE
(i) Right issue of shares is made by issuing provisional letter of allotment which shows the share, the member is entitled to take up and the price payable for the shares.
(ii) Members my take the issue wholly or may renounce the issue by selling his right to another party
(iii) It is apportioned to their present holding of shares of similar or specified shares.
A company may pass a resolution at general meeting that it cannot continuous its business due to heavy liabilities, Then a creditors meeting is called by sending each creditor with a written notice for this purpose. The creditors are given the full statement of the company position the full statement of the company position the list of creditors an their estimated claims. Then the creditors appoint a liquidator who exercises his powers for the winding of the company and supervises the sale of assets and payments to creditors. O completion of winding up, the liquidator have to call a final general meeting of the members and a meeting of the creditors. The notice for such meetings are usually are usually published in the news papers. In the meeting the liquidation has to give reports regarding the accounts and assets of the company. A copy of the report is also sent to the registrar. The register an receiving the accounts and other relevant documents takes the action of dissolution of the company.
EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)

12.Solidarity.There must be trust and confidence among members for the successful operator of the society. The members must be united while taking any decision regarding certain matters.

13.Mutual confidence.The co-operative members should have mutual confidence and trust in each other they should work like a team in achieving the objectives of the society. There must be spirit of “self-help” amongst the members.

14.Liability of the members of the society may be limited or unlimited. The members can decide about their liability at the time of registration.In case of limited liability society, the liability of members is limited to the amount payable on share held by them.But in case of society with unlimited liability the members are, on liquidation, jointly and severally liable for all the obligations of the society.

15.Economy.
All the activities of the company must be carried on economically and members should try to avoid unnecessary expenditure and wastage of the resources. The money should be spent wisely and in the best interest of the society.
FEATURES OF COOPERATIVE SOCIETIES.

(i)Registration. A co-operative society is registered under the co-operative society Act of a country. Being a co-operative body, it enjoys certain privileges which are subject to control and supervision of the state.A co-operative society enjoys perpetual succession and has its own common seal. It can enter into contact with other persons. It can file and defend suit’s, and also open bank accounts in its name.

(ii)Values. co-operative are based on the values of self-help, self responsibility, welfare, democratic, equity and solidarity. Members come together voluntarily for their mutual benefit in the spirit of openness, social responsibility and caring for other.

(iii)One man – one vote.In co-operative society, member has only one vote irrespective of shares held by him. The principles of one man vote makes the society truly democratic. All the members are treated as equal control does not rest with few individuals as in other firms or organization.
(iv)Service motive. A co-operative society is primary set up for rendering services to its members in a particular field. A society however, is not prevented to earn profit on the services provided to non-members.

(v)Religious, Tribal and Political Neutrality.A co-operative society, without considering religious faith, ethnic and political affiliations works for the social and economic betterment of its members. It enjoys autonomy and independence.

(vi)Economic prosperity for the weak. A co-operative society aims to empower economically weak people by looking after. Their own affairs in co-operative with another. In a country like ours, wealth is in few hands. It has split up the society into two groups. i.e rich and poor. A co-operative society can help the common man to get together with others like himself to safe guard their common interest. There is economic participation of all the members which helps them improve their standard of living.
Functions of co-operatives depend on the type of activity in which the society is engaged. However, the common/general functions of those co-operatives include:-

(i) To cheapen the cost of living for their members by say providing fair prices of commodities.

(ii)Reduce the marketing cost.Co-operative reduce marketing cost to members because they are able to handle (store, transport) large volumes of commodities, economics scale

(iii)Collect produce from farmers.Co-operative societies save farmers the costs of transporting their produce to the market by sending lorries to collect the produce directly from farmers or rural stores.

(iv)Storage of farmers produce.Co-operative societies own stores where they store agricultural commodities before transportation to the processing centres and markets. They also store farm inputs and consumer goods before they are distributed to the members.

(v)Provide employment.The co-operative movement currently provides over 100 million jobs and employs millions of people worldwide in various fields such as trade, transport, accounting, banking, management, manufacturing and research.

EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)
EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)

EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)
EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)


EcoleBooks | COMMERCE A LEVEL(FORM SIX) NOTES - BUSINESS UNIT (2)

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