Share Types Flashcards
A, B, C, D, E… Class Ord Shares
Shares can be issued by the same company in different classes and names with different rights attached to them. The only way to identify the rights attached to any share class would be to read the Article of Association, where the rights of all shareholders are detailed. There is a huge amount of scope within that to define exactly what each share class is entitled to.
Preference Shares
Preference shares do not normally carry the right to vote, but unlike ordinary shares preference shares carry an expectation of a dividend. This is payable after interest payments, but before ordinary dividend payments.
It is named a preference share because the preference share takes preference over ordinary shares; all shareholder rights are written in the company’s Articles of Association.
Cumulative Preference Shares
A cumulative dividend means that, where the company does not pay a dividend the right to receive that dividend is rolled into the next period. Ordinary dividends cannot be paid until ALL of the cumulative preference dividends have been satisfied.
Participating Preference Shares
Most preference shares are only entitled to a fixed rate dividend, but where additional dividends could be paid, over and above the fixed rate then participating preference dividends (extra dividend) could be paid.
Convertible Preference Shares
A preference share with rights to convert into an ordinary share.
Redeemable Preference Shares
When preference shares are issued as redeemable, they carry a specified redemption date when the company will refund the nominal (par/face) value.
Zero Dividend Preference Shares
Zero dividend preference shares, or zeros, have a fixed maturity date and also provide a fixed return. They get paid out before ordinary shares and are often regarded as being lower risk. Zeros have no voting rights and are subject to Capital Gains Tax (CGT).
Capital Cover
Measures the assets ability
To meet the redemption price of the zeros
So, a Capital Cover greater than 1 means that the zeros are fully covered by assets.
Hurdle Rate (to Redemption)
Is the annual growth rate required in the assets
To cover the zeros
So, a Hurdle Rate of 9% means that the assets need to grow by 9% and the zero would still be repaid.
Hurdle Rate (to Wipeout)
The point at which zero dividend preference shareholders receive nothing.
So, a Hurdle Rate (to Wipeout) of 90% means that the assets would have to fall by 90% before zero holders received nothing.
Negative Hurdle Rate
This is the amount that the assets can fall each year and still be sufficient to repay the zeros in full.
So, a Negative Hurdle Rate of 9% means that the assets could fall by 9% and the zero would still be repaid.
American Depositary Receipts
ADRs are used by British companies to encourage US investors to buy an equity stake in a UK company.
US investors like dollar shares and to receive dollar dividend income. Therefore, an ADR represents a shareholding in a British (or other non-UK company), although it is shown in dollars.
Statutory Rights for Shareholders in the UK
Companies must hold AGMs at least once per year
Shareholders with more than 10% of voting rights can call EGMs
Shareholders with more than 5% of voting rights can propose resolutions
Any shareholder can petition the court on grounds of the affairs of the company that are unfairly prejudicial to the interests of some or all of shareholders.
