A security, in a financial context, is a certificate or other financial instrument that has monetary value and can be traded. Securities are generally classified as either equity securities, such as stocks and debt securities, such as bonds and debentures.
# It gives the ownership to the holders.
# Ordinary Shareholders are the owner of the company.
# These shareholders do not enjoy the preference regarding payment of dividend and repayment of capital.
# It means if the company make a profit, a shareholder will get profit and if not then shareholder also does not.
# Ordinary Share Holders can participate in AGM (Annual General Meeting).
Dividend: The part of earning a profit earned by a company and give it to the shareholders.
2. Preference Shares
# As the name suggests they get the preference over the equity / ordinary shares.
# They get dividend at fixed rate amount before equity / ordinary shares.
# When company winding up the return of share capital Preference goes to the preference shares holder before Equity Shares holder.
# Preference shares do not carry a VOTING RIGHTS.
Types of Preference Shares:
1. Cumulative Preference Shares: When an unpaid dividend is considered as arrears and are carried forward to subsequent years called Commulative Preference Shares.
2. Non-Cumulative Preference Shares: They’ve rights to get a fixed rate of dividend out of the profit of current year only.
# They do not have the right of arrears i.e., if company fails to pay dividend in a particular year then that need not to be paid out of future profits.
3. Redeemable Preference Shares: can redeemed or repaid after the expiry of fixed period or after giving the notice.
4. Non-Redeemable Preference Shares: Can’t be redeemed during the lifetime. Amount only get at the time of liquidation of company.
5. Participating Preference Shares: After paying a dividend of equity shareholder The Participating Preference Shares Holder can again participants in any profit of the company.
6. Non Participating Preference Shares: They Simply can’t participate like the before one.
7. Convertible Preference Shares: Those shares can convert into equity shares after fixed period. (but according to Company’s Term and Conditions)
8. Non – Convertible Preference Shares: They are not convertible in Equity Shares.
3. Debentures / Bonds
# These are not Shares.
# Debentures is a long-term loan.
# Companies can raise additional capital by issuing the Debentures.
# No Voting right. (as Share Capital).
# Companies can raise additional capital by the issue of debentures.
# Debenture gets fixed income in the form of interest.
1. Registered Debentures: Registers in the company.
# the amount will be paid only if they have a name on the register.
2. Bearer Debentures: Not Registered entitled to get interested.
3. Redeemable Debentures: Issued for a fixed period.
# So the amount on the expiry of such period.
4. Non – Redeemable Debentures: No Redeemable in the lifetime.
# This amount paid only when the company goes into liquidation.
5. Convertible Debentures: can be converted into shares of the company on the expiry of the pre-decided period.
6. Non Convertible Debentures: Can’t convert into shares.
Based on Priority Debentures are divided in 2 parts:
1. First Debenture: These debentures redeemed before any other debentures.
2. Second Debenture: After the redemption of the first debenture this type of debenture comes.
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