Shares

SHARES. A share is tangible evidence of the fact that the holder has invested money in a given company, and is also the means of defining the extent of his holding as against those of his fellow-shareholders. In England, a share always has a definite nominal or face value, such as "one pound," "ten shillings," or even "one shilling." The size of a man's holding is measured in "so many shares," and shares are issued, bought and sold by number. This is the vital distinction from stock (q.v.) which is always measured by its nominal or face value. Thus a holding of stock is described, for example, as "floc) stock"; a holding of shares as "1 oo f r shares." Furthermore, stock is dealt in in odd amounts, e.g., "1 oo.3s.4d. stock"; shares must always be dealt in in multiples of a share—thus a sale of share" or "'oil shares" is not permitted.

Interest or dividend payable on shares is expressed in one of two ways—"a dividend of sixpence (or other sum) per share," or "a dividend of 5 (or so much) %," the latter meaning a dividend equivalent to the percentage named on the face value of each share. If the shares are Li shares, 5% is equivalent to is. per share, but if they are ios. shares, 5% is equivalent to 6d. per share.

The market value of shares has no connection with their nom inal value. It is governed by price, which is always expressed in so many pounds, shillings or pence per share. Thus:— This is the usual stock exchange way of publishing prices. The presence of fractions and the absence of the stroke implies pounds; otherwise it is shillings and pence.

A company increases its capital by issuing additional shares. They may be issued either free as a complete bonus to share holders (e.g., two bonus shares for every three held), or at a price below their current market price as a partial bonus to share holders (e.g., if the market price of outstanding /I shares is 4, they may be issued at 24, each holder of two shares being entitled to buy one new, or to sell his right in the market to anyone who will buy it), or at the full market price direct to the public. Con versely, if the capital of a company has to be written down—i.e., reduced, this is done by reducing the nominal value of each share, e.g., a company with shares of Li each might write them down to ten shillings each. Occasionally shares are "split"—i.e., a com

pany whose shares were originally of Li() each might split each share into ten of Li each, thus increasing the saleability of the shares.

Shares usually represent capital as opposed to loans and deben tures. (See STOCKS.) They take three main forms: preference, ordinary, and deferred.

Kinds of Shares.

Preference shares usually receive only a fixed rate of dividend, although occasionally they share with the ordinary shares in any further profits. They are then called "par ticipating preference shares." Usually in this case, the ordinary shares get a definite dividend for themselves, and the participating preference shares only receive a share of what is left. In all cases, preference shares rank ahead of ordinary and deferred shares, both as to dividend and as to repayment in the event of liquidation. Thus, if a company earns L foo,000 and the preference dividend (say 5% on 2,000,000 Li preference shares) requires the full Lioo,000, the holders of the ordinary shares get nothing. If preference shares are "cumulative" any arrears of dividend on them are carried forward and accumulated until a profit is earned. Then all the arrears must be paid off, before anything is paid on the ordinary shares; otherwise, once a preference dividend is not paid, the shareholders have no claim in respect of that dividend upon any future profits.

Ordinary shares rank after preference shares, but whereas the preference shareholder (unless "participating") is only entitled to a fixed dividend and to the return of the nominal value of his shares in the case of liquidation, in both cases the ordinary share holder receives "what is left." If, however, the company has also issued deferred shares, the ordinary shareholder only gets a fixed rate of dividend, perhaps with participating rights, and the de ferred shareholder receives "what is left." It is not usual for a company to issue all three kinds of shares. Usually it only issues two of the three kinds. When the first and third are issued, they are often called "preferred ordinary" and "deferred ordinary." In no case are directors bound to declare any dividend, even if profits have been earned. (See also INVEST