Majority of the candidates’ that attempted this question performed poorly. The expected answers are:
(a) Limited Liability:
- This implies that, in the event of liquidation, the liability of the share-holders are limited to the value of shares held.
(b) Ordinary Shareholders:
- This type of shareholders is the true owners of the company;
- They are the last of the shareholders to receive dividend;
- They are paid dividend after other classes of shareholders have been paid;
- The payment of their dividend depends on what Board of Directors declared;
- They are entitled to no dividend if not profit is made for that year;
- They have voting rights at Annual General Meetings (AGM)
(c) Preference Shareholders:
- They are entitled to a fixed rate of dividend;
- Holders receive dividend before the ordinary shareholders;
- In time of liquidation, they are paid before the ordinary shareholders.
(d) Debenture Holders:
- They are creditors of the company;
- Holders receive a fixed interest on their investment;
- Holders are paid interest before profits are declared;
- In time of liquidation, debenture holders are paid before the shareholders.
(e) Authorized Share Capital:
- This is the total of the share capital which the company is allowed to issue to shareholders;
- This is the total capital applied for by the company as stated in the Memorandum of Association and approved by the Registrar of Companies.
