Shares and Dividends

Shares A unit unit of owners ownership hip intere interest st in a corpor corporati ation on or financ financial ial asset. asset. While While owning shares in a business does not mean that the shareholder has direct control over the business's day-to-day operations, being a shareh sharehold older er does does entitl entitlee the posses possessor sor to an equal equal distrib distributi ution on in any   profits, if any are declared in the form of dividends. The A "share" is nothing more, and nothing less than a partial ownership of a business. In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued issued by a company or can be purchased purchased from the stock market. By owning a share we can earn a portion and selling shares we get capital gain. So, our return is the dividend dividend plus the capital capital gain. However, However, we also run a risk of making a capital loss if we have sold the share at a price below your buying price. Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues. Over the long run, stocks have historically averaged about 10% annual returns However, stocks offer no guarantee of any returns and can lose value, even in the long run. There are two types of shares under Indian Company Law that is Equity shares and Preference Shares. meanss shar shares es whic which h acco accomp mpli lish sh the the foll follow owin ing g Prefer Preferenc encee Shares Shares mean conditions, so, a share which is does not fulfill both these conditions is an equity share. The preference shareholders are entitled to receive a fixed rate of dividend   before the dividends are distributed to equity shareholders. 

Preference shareholders are entitled to get back their capital in priority pr iority to equity share holders in the event of liquidation of the company.



Preference shareholders enjoy preferential rights, both with respect to  payment of dividends and return of capital( on liquidation of the company) It means the sum paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other  words, preference share capital has priority both in repayment of dividend as well as capital.

Types of Preference Shares 1. Cumulative preference share- Preference shares are cumulative where

the preference dividend, if not paid in one year, is carried forward to succeeding years. These shares have a right to claim dividend for  those years also for which there were no profits. The dividend goes on cumulating unless it is otherwise paid. 2.  Non- cumulative preference share - The holders of these shares have

no claim for the unpaid dividends. They are paid a dividend if there are sufficient profits. These shareholders cannot claim the unpaid dividends in subsequent years. 3. Redeemable preference share- Redeemable Preference shares are

 preference shares which have to be repaid by the company once the term of which for which the preference shares have been issued comes to an end. 4. Irredeemable preference share- Irredeemable Preference shares means

  preference shares need not repaid by the company apart from on winding up of the company. 5. Participating preference share- These shareholders are entitled to

 participate in the surplus profits of the company in addition to their  usual fixed rate of dividend. This means participating shareholders obtain returns on their capital in two forms- fixed dividend and share in excess profit. 6.   Non- participating shareholders- A non-participating share is one

which do not get any such right to take part in the profits of the company after the dividend and capital has been paid to the preference shareholders. 7. Convertible preference shares- Sometimes preference shareholders

may be given the right to convert their preference shares into equity shares within a stipulated period. Such preference shares are known as convertible preference shares. 8.  Non-convertible preference share- These shareholders are not given

the right to convert their preference shares into equity shares.

Equity shares

Equity shares are those shares on which no special privilege is attached. in other words, all the shares, except preference shares are called equity shares.. The equity shareholders are eligible to get dividends after payment of dividends to preference shareholders. In case of equity shareholders, the rate of dividend is not fixed. It depends upon the amount of profits earned by the company. Therefore, equity shares are much more speculative in nature than preference shares.

Dividends Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a  profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can  be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. It’s a distribution of a  portion of a company's earnings, decided by the board of directors, to a class of its shareholders For a  joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholder equity section in the company's balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. The different types of dividends include: 

Special dividend: Normally, public companies declare their dividends on a specific schedule; however, they also have the option to declare a dividend at any time. This type of dividend is referred to as a special dividend.



Cash dividend: Paid in checks, this is the most basic form of dividend. Cash dividends considered a type of investment earnings, and are taxable.



Stock dividend: Given in the form of bonus shares or stocks of the issuing company or a subsidiary company. Normally, they are offered on the basis of a pro rata allotment.



Property (in kind) dividend: Distributed in the form of assets by the issuing company or a subsidiary company.



Other types of dividend: Warrants and financial assets having market value are also distributed in the form of dividends.

Proposed dividend When a company reports profit (quarterly, half yearly or annually or even less frequently), after paying off the taxes, it may decide to pay out the dividend to its equity/share holders. The profit can be used in two ways - either plough it back into the business or pay out dividend to your investors.

If the top management decides on a dividend payout, then the amount earmarked for the same is recorded in the account books as proposed dividend as a part of the company's short term liabilities. It is "proposed"  because it has still to be paid out and thus is also labeled as a liability for the company. Once it is paid out, the liability is erased and the payment is recorded as "dividend paid" in the profit and loss statement of the company

Interim dividend

Distribution of  profits to stockholders (shareholders) before a firm's annual earnings have been computed, or at any time between two successive annual general meetings (AGM) is known as interim dividend. Thus, it’s a dividend  payment made before a company's AGM and final financial statements. This declared dividend usually accompanies the company's interim financial statements.