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Shares in the company may be related that is they may carry the same rights and liabilities and confer on their holders the same rights, liabilities and duties. There are two types of shares under Indian Company Law that is Equity shares and Preference Shares.
A. An equity share means that branch of the share capital of the company which are not preference shares.
B. Preference Shares means shares which accomplish the following 2 conditions, so, a share which is does not fulfill both these conditions is an equity share.
A non-cumulative or simple preference shares gives right to predetermined percentage dividend of profit of each year. In case no dividend thereon is stated in any year because of absence of profit, the holders of preference shares get zero nor can they claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative preference shares still give the right to the preference shareholders to demand the unpaid dividend in any year during the succeeding year or years when the profits are available for distribution. In this case dividends which are not paid in every year are accumulated and are paid out when the profits are available.
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. Irredeemable Preference shares means preference shares need not repaid by the company apart from on winding up of the company. But, under the Indian Companies Act, a company cannot issue irredeemable preference shares; in fact, a company restricted by shares cannot issue preference shares which are redeemable after more than 10 years from the date of issue. In other words the highest tenure of preference shares is 10 years. If a company is incapable to redeem any preference shares within the specific period, it may, with consent of the Company Law Board, issue further redeemable preference shares equivalent to redeem the old preference shares including dividend thereon. A company can issue the preference shares which from the commencement are redeemable on a fixed date or after definite period of time not more than 10 years provided it comprises of following conditions :
Participating Preference shares are allowed to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after payment of certain rate of dividend on equity shares. A non-participating share is one which does not such right to take part in the profits of the company after the dividend and capital has been paid to the preference shareholders.