(Conditions/Restrictions on Issue of Preference Shares) The conditions or restrictions on issue of preference shares are as follows
1. Issue by a company limited by shares Only companies limited by shares can issue preference shares. 2. No issue of bad preference shares – No company can issue bad preference shares.
3. Authorized by Articles – Due preference shares can be issued only if the right of issue has been given by the Articles of Association of the company.
4. Ordinarily beneficiary within twenty years – No company can issue due preference shares which will be liquidated after more than 20 years from the date of their issue.
5. Redemption of shares of infrastructure projects within a maximum period of 30 years – For infrastructure projects, companies can issue preference shares due within a period of more than 20 years but up to 30 years.
(2) Equity Share – Equity shares are called those shares which are not preference shares. They get dividend only if some profit remains after paying the dividend to the preference shareholders. In addition, the rate of dividend to be paid to them is not pre-determined. The rate at which they should pay dividend is decided by the operators. Similarly, in the event of dissolution of the company, their capital is returned only after returning the entire capital of the preference shareholders. These shareholders have the right to receive notice of the meetings of the company, attend them and vote. If seen, the equity shareholders are actually the owners of the company.
A company limited by a single share of liability can issue the following types of equity shares:
1. With the right to vote and
2. Equity shares having differential rights in respect of dividend, voting rights etc.