Types of Shares in Nigeria
Basically, there are five (5) categories among the types of shares in Nigeria. You will be giving full details about the types of shares we have in Nigeria.
A share is a unit of ownership in a company or financial asset. It is essentially an interchangeable piece of a company’s value that can fluctuate up or down depending on many different market factors.
You as a shareholder, must understand the exact nature of the shares and their value. Basically, when you own shares in a company, you technically own some part of that company. However, this is not the complete story, as certain rights and liabilities are associated with being a shareholder.
The rights and liabilities that a share presents to its holder are by the company’s Memorandum and Articles of Association. Also, it can be transferred from person to person, subject to the provisions of law or the restrictions described in the Association of Companies of the Company.
Furthermore, there are different types of stocks in Nigeria, and you can make a profit or loss on your investment depending on the type of shares. There are five types of shares in Nigeria you will want to know before starting a shared business.
The five (5) categories among the types of shares in Nigeria. There are:
- Ordinary shares.
Ordinary shares are those that the company issues to raise funds from public and private sources for its functioning, have voting rights, and are shown under owner’s equity on the liability side of the company’s balance sheet.
Ordinary shares are also called common stock and represent equity ownership in the company in proportion to the number of ordinary shares each investor holds. It does not have a predetermined dividend. That is, the shareholders of such shares do not receive compulsory dividends sent.
It is up to the company to pay dividends if it seems prudent, given its financial health. The shareholder bears the major stake regarding liabilities of the shares.
- Preference shares.
Preference shares, commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to payments from the company’s assets before common stockholders.
With preference shares come certain rights which are with the shareholder. Basically, as a preference shareholder, you will receive a fixed dividend every year. In addition, preference shareholders generally have higher profits than ordinary shareholders.
Most preference shares carry a fixed dividend, whereas common shares generally do not. Preferred stock shareholders usually have no voting rights, but common shareholders usually do.
Preference shares allow a company to repurchase its shares in the future (for example, if interest rates fall and the company wants to issue new shares with a lower dividend rate). At the same time, investors can buy their money at a pre-agreed price—chances of getting it back.
- Deferred shares.
Deferred shares are a form of stock that is sometimes issued to the principal people of the issuing company. Usually, the officers or directors of the company are eligible to receive these shares of stock. As part of a deferred share issue, holders of shares cannot redeem them as long as they are in the employment of the company.
However, it is not possible to participate in the deferred stock program after employment is terminated for any reason. When the employee is no longer with the company, the shares are converted into preferred or common shares at the current market price.
Another important aspect of the deferred stock program is that shares are awarded in the event of a company’s liquidation or bankruptcy. All obligations must be met before the shareholder can see any return on the share account. This means that not only will creditors be paid first, but investors holding preferred or common shares of stock will also be paid before any form of compensation is received by the deferred shareholder.
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- Cumulative shares.
These types of shares can accumulate if the company does not have sufficient distributable reserves. It is a preferred stock option that states that the company must pay outstanding dividends to cumulative shareholders before other classes.
The cumulative shares do not lose on dividends if the company fails to pay them. Unpaid dividends keep accumulating until the company ultimately decides to pay them. Investors enjoy a higher rate of dividend as compared to equity shareholders.
- Redeemable shares.
A limited company may issue shares that are to be redeemed or which can be redeemed at the option of the company or the shareholder. A private company is not required to express authority in its articles to issue redeemable shares, although, it may exclude or restrict its ability to issue shares by including a relevant provision in its articles. Redeemable shares cannot be issued when the company does not have any non-redeemable shares issued.
Redeemable shares in a private company may be redeemed from distributable profits, the proceeds of a new issue of shares made for redemption purposes, or out of capital. Where shares are redeemed, they are treated as canceled and the amount of the company’s issued share capital is reduced by the face value of the shares redeemed.
The legal perks and rights that come with being a shareholder depend on the type of shares. Basically, before buying a share, you should understand its type and the privileges you get in the company.
Given the above, persons wishing to incorporate the company should bear in mind that the shares of the company must be issued solely to the company’s memorandum of incorporation to all customers. A company can issue shares from multiple share classes and shareholders can buy more than one type or class of shares in the same company.
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