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Type of shares offered and benefit provided of company X next year, is equity shares.
The holder of these shares do not enjoy any preferential rights These shares rank after preference shares Dividend is dependent on the size of profits of the company, the rate of dividend is determined by the directors of the company
Type of shares offered and benefit provided of company Y next year, is preferred shares.
Preference shares are entitled to receive dividend in preference to equity shares. Preference shares are entitled to a fixed rate of dividend. Preference shares have preference to equity shares at the time of payment of capital in case of winding up of the company. Accumulative preference shares are entitled to receive arrears of dividend whenever there is sufficient profit.. Redeemable preference shares may be paid back by the company
Identify at least two major rights (other than the benefit mentioned above) if Mr. K purchases shares of company X.
Potential for Profit:
The potential for profit is greater in equity share than in any other investment security. Current dividend yield may be low but potential of capital gain is great. The total yield or yields to maturity may be substantial over a period of time.
In corporate form of organization, its owners have, generally, limited liability. Equity Share is usually fully paid. Shareholders may lose their investment, but no more. They are not further liable for any failure on the part of the corporation to meet its obligation.
Identify at least two major rights (other than the benefit mentioned above) if Mr. K purchases shares of company Y.
Appeal to Cautious Investors:
Preference shares can be easily sold to investors who prefer reasonable safety of their capital and want a regular and fixed return on it.
No Obligation for Dividends:
A company is not bound to pay dividend on preference shares if its profits in a particular year are insufficient. It can postpone the dividend in case of cumulative preference shares also. No fixed burden is created on its finances.
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