Company Finance

Question 1

What are the two main “classes” of share?

Answer 1

Ordinary and Preference

Question 2

What rights do ordinary shares carry?

Answer 2

1. The primary voting rights of the company
2. Right to a dividend (if declared)
3. Rights to participate in a surplus on winding up (although they will rank below preference shares)

Question 3

What is a dividend?

Answer 3

A sum of money paid by a company to its shareholders out of its profits

Question 4

Which type of share takes priority as to both capital and dividends? Ordinary or Preference shares?

Answer 4

Preference shares

Question 5

What are the four types of preference share?

Answer 5

1. Cumulative
2. Non-cumulative
3. Participating
4. Convertible

Question 6

Cumulative preference shares:

Answer 6

The company must pay the preference shareholder any dividend arrears
(missed dividends) before it can pay ORDINARY shareholders a dividend.

Question 7

Non-cumulative preference shares:

Answer 7

If there are insufficient profits to pay a dividend in one year then the unpaid
dividend will not be paid in future years.

Question 8

Participating preference shares:

Answer 8

The shares come with a right to an additional payment of a share of the
profits of the company, in addition to a fixed dividend.

Question 9

Convertible preference shares:

Answer 9

The dividend may be exchanged for ordinary shares at a specified price
and after a specified date.