Explain features of ordinary shares.

1. Claim on income: they have a residual ownership claim i.e. which is, earnings available for ordinary shareholders, after paying expenses, interest charges, taxes and preference dividend if any.
2. Claim on assets: ordinary shareholders have a residual claim on the company's assets in the case of liquidation i.e. on account of business failure or sale of business, out of the realized value of assets, first the claims of debt-holders and then preference shareholders are satisfied and the remaining balance, if any is paid to shareholders.
3. Right to control: control in the context of a company means the power to determine its policies. This is normally approved by the directors of a company while the day to day operations are carried out by managers appointed by the board. Ordinary shareholders have the legal power to elect directors on the board. If the board fails to protect their interests they can replace directors, they are also able to control management of the company through their voting rights and right to maintain proportionate ownership.
4. Voting rights: ordinary shareholders are required to vote on a number of important matters, for instance election of directors and change in the memorandum of association, if a company wants to change its authorized share capital or objectives of business, it requires ordinary shareholders? approval.
5. Pre-emptive rights: this right entitles a shareholder to maintain his proportionate share of ownership of the company. This grants shareholders the right to purchase new shares in the same proportion as their current ownership.
6. Limited liability: ordinary shareholders are the true owners of the company, but their liabilities limited to the amount of their investment in shares. If shareholders have already fully paid the issue price of share purchased, he has nothing more to contribute in the event of a financial distress or liquidation.

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Kavungya answered the question on September 26, 2019 at 05:44