Types of shares A company may have many different types of shares that come with different conditions and

rights. There are four main types of shares:

Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up. Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders. Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has distributable profits. Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares.

What is a Debenture? A Debenture is a debt security issued by a company (called the Issuer), which offers to pay interest in lieu of the money borrowed for a certain period. In essence it represents a loan taken by the issuer who pays an agreed rate of interest during the lifetime of the instrument and repays the principal normally, unless otherwise agreed, on maturity. These are long-term debt instruments issued by private sector companies. These are issued in denominations as low as Rs 1000 and have maturities ranging between one and ten years. Long maturity debentures are rarely issued, as investors are not comfortable with such maturities Debentures enable investors to reap the dual benefits of adequate security and good returns. Unlike other fixed income instruments such as Fixed Deposits, Bank Deposits they can be transferred from one party to another by using transfer from. Debentures are normally issued in physical form. However, corporates/PSUs have started issuing debentures in Demat form. Generally, debentures are less liquid as compared to PSU bonds and their liquidity is inversely proportional to the residual maturity. Debentures can be secured or unsecured. What are the different types of debentures? Debentures are divided into different categories on the basis of: (1)convertibility of the instrument (2) Security Debentures can be classified on the basis of convertibility into: Non Convertible Debentures (NCD): These instruments retain the debt character and can not be converted in to equity shares Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity

shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription. Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company. Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue. On basis of Security, debentures are classified into: Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.

Definition of 'Stock Option' A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date. In the U.K., it is known as a "share option".

Convertible note A convertible note is a debt security that can be converted into equity, or shares of stock, at the noteholder's discretion or upon the occurrence of certain events. As a debt security, the notes pay regular interest and have a fixed maturity date. Convertible notes are a type of convertible bond. Notes are most often shorter term debt instruments with maturities of five years or less, and bonds will have maturities of 10 years or more.

Definition of 'Convertible Preferred Stock' Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as "convertible preferred shares".

Definition of 'Warrant' A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.

Definition of 'Rights' A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called "rights," which give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. Essentially, the company is giving shareholders a chance to increase their exposure to the stock at a discount price. Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value.

When a company sells its stock to an investor, a stock subscription agreement must be prepared. If the offering is considered "public" rather than "private" under U.S. securities law, burdensome reporting requirements apply. A good private subscription agreement defines the relationship between the company and the investor and establishes that the offering qualifies as a private placement rather than a public offering.
Stock Purchase

A subscription agreement is essentially a promise by the company to sell a given number of shares to a particular investor at a certain price, and an agreement by the investor to pay that price. Since shares of stock are abstract entities, they are represented by share certificates issued by the company. Most subscription agreements allow the company to cancel the sale and refuse to issue the share certificates even after the subscription agreement is signed under certain conditions (such as misrepresentation by the investor).

A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time.[1] A rights issue is in contrast to an

initial public offering, where shares are issued to the general public through market exchanges. Closed-end companies cannot retain earnings, because they distribute essentially all of their realized income, and capital gains each year. [2] They raise additional capital by rights offerings. Companies usually opt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans.[3] What is a rights issue? A rights issue is an issue of new shares for cash to existing shareholders in proportion to their existing holdings. A rights issue is, therefore, a way of raising new cash from shareholders - this is an important source of new equity funding for publicly quoted companies. Why issue shares to existing shareholders? Legally a rights issue must be made before a new issue to the public. This is because existing shareholders have the right of first refusal (otherwise known as a preemption right) on the new shares. By taking these preemption rights up, existing shareholders can maintain their existing percentage holding in the company. However, shareholders can, and often do, waive these rights, by selling them to others. Shareholders can also vote to rescind their preemption rights. Definition of 'Dividend Reinvestment Plan - DRIP' A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.

Company options

Right to take up certain securities on specified terms within or at a specified time. Company options are issued by companies for the purpose of raising funds. They give shareholders an opportunity to buy new shares at a fixed price on or before a predetermined date. This gives the company the ability to raise funds for future projects. The exercise of company issued options results in an increase in the company's capital. The terms and conditions are determined solely by the company. All company options are call options. Exchange traded options (ETOs) are traded over existing shares. Their exercise results in a transfer of ownership of the underlying shares, and not in an increase in the company's capital. The company is not a party to the contracts traded.