Are there different types of shares?
A company often has different types of shares that all come with different conditions and rights attached to them. Generally speaking share types fall into the following four categories:
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- Ordinary - these are the ordinary shares of the company that come with no particular special rights or restrictions. The company can divide them into classes of different value. In terms of value, they have the potential to provide shareholders with the highest financial gains, but also have the highest risk factor.
- Preference – this type of share generally provides the holder with preferential treatment when a company's annual dividends are distributed to its shareholders. Preference shares receive a fixed dividend, meaning that shareholders do not benefit from increases in the business' profits. However, they are rightfully entitled to their dividend before the other share classes if the company is in a risky position.
- Cumulative preference - these shares carry a right that, if the company is unable to pay the dividend in one particular year, it will carry it forward to successive years. Provided a company has distributable profits, these shares must be paid.
- Redeemable – these shares are issued by the company with an agreement that it will buy them back at the option of either the company or the shareholder after a certain period, or on a fixed date decided by the business. A company is prohibited from having only redeemable shares.