share

An interest in an incorporated company but not in its property (i.e. it is a *chose in action). A shareholder acquires such an interest on *allotment or on the *transfer or *transmission of shares. While the company is a going concern, shares carry rights in relation to voting and sharing profits (see *dividend). When a *limited company is wound up the shareholders have rights to share in the assets after debts have been paid. If there are no such assets they lose the amount of their investment but are not liable for the company’s debts (see *fraudulent trading; *wrongful trading).

Preference shares carry a right to a fixed percentage dividend (e.g. 10% of the *nominal value) before ordinary shareholders receive anything. Preference shareholders also have the right to the return of the nominal value of their shares before ordinary shareholders (but after creditors). Holders of participating preference shares have further rights to share surplus profits or assets with the ordinary shareholders. Preference shares are generally cumulative, i.e. if no dividend is declared in one year, holders are entitled to arrears when eventually one is paid. Usually preference shareholders can vote only when their *class rights are being varied.

Ordinary shares constitute the risk capital (also called equity capital), as they carry no prior rights in relation to dividends or return of nominal value. However, the rights they do carry are unlimited in extent: if the company is successful, the ordinary shareholders are not restricted to a fixed dividend (unlike the preference shareholders) and the high yield upon their shares will cause these to increase in value. Similarly, if there are surplus assets on a winding-up, the ordinary shareholders will take what is left after the preference shareholders have been satisfied. Because ordinary shareholders carry the risk of the enterprise, they generally have full voting rights in a *general meeting (though some companies issue nonvoting ordinary shares to raise additional capital without diluting the control of the company).

Redeemable shares are issued subject to the proviso that they will or may be bought back (at the option of the shareholder or the company) by the company. They cannot be bought back unless fully paid-up and then only out of profits (see *capital redemption reserve) or the proceeds of a fresh issue of shares made for the purpose.