ACCA F4 - Corp and Business Law (ENG)

Part E Capital and the financing of companies  15: Share capital 231

2.3 Market value

Shares of a public company are freely transferable (providing the appropriate procedures are followed)

and therefore may be subsequently sold by some or all of the shareholders. The sale price will not

necessarily be the nominal value, rather it will reflect the prospects of the company and therefore may be

greater or less than the nominal value.

3 Types of share

If the constitution of a company states no differences between shares, it is assumed that they are all

ordinary shares with parallel rights and obligations. There may, however, be other types, notably

preference shares.

3.1 Ordinary shares (equity)

If no differences between shares are expressed then all shares are equity shares with the same rights,

known as ordinary shares.

Equity is the residual interest in the assets of the company after deducting all its liabilities. It comprises

issued share capital excluding any part of that does not carry any right to participate beyond a specified

amount in a distribution.

Equity share capital is a company's issued share capital less capital which carries preferential rights.

Ordinary shares are shares which entitle the holders to the remaining divisible profits (and, in a

liquidation, the assets) after prior interests, eg creditors and prior charge capital, have been satisfied.

3.2 Class rights

Class rights are rights which are attached to particular types of shares by the company's constitution.

A company may at its option attach special rights to different shares regarding:

 Dividends

 Return of capital

 Voting

 The right to appoint or remove a director

Shares which have different rights from others are grouped together with other shares carrying identical

rights to form a class. The most common types of share capital with different rights are preference

shares and ordinary shares. There may also be ordinary shares with voting rights and ordinary shares

without voting rights.

3.3 Preference shares

The most common right of preference shareholders is a prior right to receive a fixed dividend. This right is

not a right to compel payment of a dividend, but it is cumulative unless otherwise stated. Usually,

preference shareholders cannot participate in a dividend over and above their fixed dividend and cease to

be entitled to arrears of undeclared dividends when the company goes into liquidation.

Preference shares are shares carrying one or more rights such as a fixed rate of dividend or preferential

claim to any company profits available for distribution.

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