Shares are a form of ownership in a company. This means if you have 6% shares in MTN Ghana, you own 6% of the company. Many people buy shares to gain profit (dividends). There are, however, different rights attached to the different types of shares. This article discusses the types of shares in Ghana, their differences, and the implications for shareholders.
Types of Shares
- Ordinary/Equity Shares
This is the most common type of share issued by companies. This type of shares allows the shareholder to vote, and the right to dividends (profit) at the end of the year if they are declared. It also gives the shareholder the right to some assets when the company is closing down.
The risk equity shareholders face is that when a company is closing down, they will be the last to be given assets. This means that, when the company becomes bankrupt due to debt, the company will first pay its creditors ( those it owes) and the other types of shareholders before attending to equity shareholders. In some cases, by the time assets are done being shared, there will be nothing left for equity shareholders to benefit. Therefore, they have the highest risk.
- Preference Shares
These are shares that have rights over the ordinary/equity shares. This is applied when it comes to paying dividends and repayment when the company closes down. This means, when a dividend (profit) is declared, preference shareholders will be paid first before equity shareholders.
This also applies when assets are being shared after the company goes bankrupt. Preference shareholders have a specific amount of dividend they are to be paid annually. So instead of receiving a percentage of what the company earns, they receive a specific amount.
Types of Preference Shares
- Cumulative: If a preference shareholder is to be paid 60 cedis from dividends declared, and in 2023 the company makes 20 cedis, that amount will be sent to the preference shareholder. The remaining 40 cedis will be paid the next year in addition to the 60 cedis for that year. This means that the preference shareholder will receive 100 cedis in 2024.
- Non-cumulative: Here, if the company makes 20 cedis in 2023, the preference shareholder will receive it. However, the balance will not be paid in 2024. Instead, the shareholder will receive only 60 cedis.
- Participating: Here, the shareholder may participate further in profits beyond their fixed dividend. This means, they may agree that even though the company has to pay 60 cedis every year, if the company makes more than 500 cedis in a year, the shareholder will receive a percentage of that as well.
- Non Participating: Here, irrespective of how much the company makes, the shareholder will only receive 60 cedis, and nothing more.
- Redeemable: These are shares that may be bought back by the company at a later date.
- Non-Redeemable: This type of preference share may not be bought back by the company.
The Companies Act, 2019, has introduced different types of shares to fit various types of investors and the company’s needs. Companies have the responsibility to comply with these laws while being fair and transparent in the issuance and management of shares. Understanding the types and implications of different share types is important to protect investors and develop Ghana’s growing economy.
