Guide for Dummies: Shares

Definition

An interest having a money value and made up of diverse rights specified under the Articles
of Asscociation.

Analogy

Pizza = Share capital; 1 slice of pizza = 1 unit of share; Pizza crust = Ordinary shares; Pizza
mainframe = Preference shares

Types of Shares

(1) Ordinary Shares (“OS”)

 Represents the equity ownership of the Company (share capital);

 Entitled to one vote per share in the management aspect of the Company;
 Do not have any predetermined dividend amount;
 Do not have a maturity date but subjected to share buyback by the Company; and
 Have the right to sell/transfer shares and enjoy residual claims on the assets.

(2) Preference Shares (“PS”)

 Ensures that the dividends are paid out first before OS;
 Customizeable;
 Have fixed dividends; and
 Precedence over OS in terms of payment in the case of bankruptcy.

Ordinary Shares Preference Shares

Have voting rights
No mandatory payment of dividends;
Higher or none at all
Only entitled to residual payments
Issuance of new shares change
shareholding structure
No voting rights
Fixed and guaranteed dividends
Precedence in terms of payment
Issuance of new share does not change
shareholding structure

Classification of Shares:

(a) Redeemable & Non-Redeemable

 Issued on terms that the Company may buy them back at a fixed date or at the director’s
discretion.
(b) Cumulative & Non-Cumulative

 Issued on the term that if the PS are not paid due to insufficient profit, the arrear
dividend + the current dividend will be paid or will not be paid at a later time in
subsequent years.

(c) Convertible & Non-Convertable

 Issued on terms that the PS may or may not be converted into OS within a stipulated
period of time.

(d) Participating & Non-Participating

 Gives the holder the right to receive additional dividends if the dividend of OS exceeds
the PS and have liquidation preferences (or vice versa).

*Dilution of Shares (Dilute = Cair)

 Reduction in ownership percentage/interest due to issuance of new ordinary shares by

the Company.
 Effect: Reduces the value of existing shares by reducing the stock’s earning per share.