Types of Ordinary Shares

Question 1

Preference Shares

Answer 1

• Normally no right to vote
• Carries expectation of dividend (fixed)
• Takes preference over ordinary shares

Question 2

Cumulative Preference Shares

Answer 2

• Rolls over rights to dividends if not paid
• Ordinary share dividends are not paid until cumulative dividends have been satisifed

Question 3

Participating Preference Shares

Answer 3

• As per preference shares - receive right to fixed dividend
• However can, where applicable receive additional dividends where additional dividend payments could be paid over and above the fixed amount

Question 4

Convertible Preference Shares

Answer 4

• Pereference shares with a right to convert into ordinary shares

Question 5

Redeemable Preference Shares

Answer 5

• Specific redemption date whereby the issuing company will refund the par/ nominal value of the shares

Question 6

Zero Dividend Preference Shares

Answer 6

• Known as ‘zeros’
• Fixed maturity date and also provide a fixed return
• Paid before ordinary shares and regarded as lower risk
• No voting rights

Question 7

Capital cover?

Hurdle Rate?

Answer 7

• Measures the assets ability
• To meet the redemption price of zeros

Capital cover greater than 1 means that the zeros are fully covered by assets

• Hurdle rate (to redemption) is the required growth in the assets to cover the zeros
• Hurdle rate (to wipout) is the point at which zero dividend preference shareholders will receive nothing
• Negative hurdle rate is the amount that assets can fall and still be sufficient to repay the zeros.

Question 8

American Depositary Receipts (ADRS) - key points:

Answer 8

• Used by British companies to encourage US investors to buy an equity stake in a UK company
• ADR is a certificate issued by a US bank that represents shares in foreign stock
• ADRs trade on US stock exchanges
• ADRs and dividends are priced in USD
• Represent an easy, liquid way for US investors to own foreign stocks

Question 9

What are the statutory rights for UK shareholders as per the Companies Act 2006?

Answer 9

• 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 chareholder can petition the court on ground of the affairs of the company that are unfairly prejudicial to the interests to some or all of the shareholders

This is for UK companies governed under the statutes in the UK.