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Capital Market Instruments : Equity shares, Preference shares, Sweat Equity

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In this article we will study Capital Market Instruments : Equity shares, Preference shares, Sweat Equity. We will discuss about Capital Market, its meaning and some basic Instruments of capital market and also study that how they promote Capital Market.

Capital Market Instruments : Equity shares, Preference shares, Sweat Equity

Capital Market : Capital Market refers to that market which concerned with financial system and helps in raising funds with dealing in shares, bonds, and other long-term investments.

Basic Instruments :

  1. Equity Shares.
  2. Preference Shares.
  3. Debentures and Bonds.
  4. Sweat Equity Shares.
  5. Non-Voting Shares.
  6. Share Warrants.

(1) Equity Shares : Equity shares refers to those shares which are paid dividends only when profits are left only after paying fixed rate of dividend. The dividend is not fixed in equity shares, it is depends on the company profit. If the profit is higher dividend also higher or vice-versa. Equity shareholders have voting right and right to control company affairs.

(2) Preference Shares :Preference shares are those which carry following rights:

1. Right to receive fixed rate of dividend before paying any dividend on equity shares.

2. At the time of wound up of company, they have right to return capital before paying              equity shares.

Types of Preference Shares :

     (1). Cumulative Preference Shares – Those share whose holders are entitled to recovers  the arrears of preference shares before paid on  equity shares.

 (2). Non-Cumulative Preference Shares _  The holders of which get fixed amount of dividend out of year profit. If company is failed to paid amount of dividend due to any reason , such shareholders get nothing nor they claim dividend of any year.

    (3). Participating Preference Shares –  These shareholders have right to participate in surplus profits and they have right to receive dividend equal to the normal specified rate.

 (4).Non-participating Shares – These shareholders get only fixed rate of dividend and does not have right to participate in  surplus profits or any surplus on winding up.

 (5). Redeemable Preference Shares – Those shares which will be repaid by the company within  stipulated period 0f issuing and fulfilling certain conditions.

 (6). Irredeemable Preference Shares –  Those shares whose  capital is cannot be refunded before winding up.

(7). Convertible Preference Shares –  These Shares gives option to investors to convert it preference shares into equity shares.

(8). Non-Convertible Preference  Shares –  Those shares in which their is no option in conversion on shares. They get their money back on maturity. 

 

(3). Sweat Equity Shares : Sweat Equity shares refers to  the equity shares issued by the company  to its employees or directors at discount or for cash consideration and these shares are not resold by their holders within period of 3 years, that period is called lock in period.

(4). Non-Voting Shares –  Non- voting shares refers to those shares which do not allow shareholders to vote at meeting. Their  owner cannot vote on company resolution and these shares have less value than voting shares.

(5). Shares Warrants – It is a bearer document of title to shares and only issued  by public companies and  to against fully paid up shares only. These are not issued by private company because share warrants states number of shares entitled. It is a negotiable document  easy in transfer
The holder of the share warrant is entitled to receive dividend as decided by the company.
There are three parts of a share warrant:
(1) The counter foil.
(2) Share Warrant proper.
(3) The dividend coupons.

 

 PURE INSTRUMENT :

  • Equity Shares.
  • Preference Shares.
  • Non-convertible Debentures.

HYBRID INSTRUMENT :

  • Convertible Debentures.
  • Convertible Preference Shares.
  • Partly Convertible , etc.

DERIVATIVES :

  • Derivatives Instruments.

we have studied Capital Market Instruments : Equity shares, Preference shares, Sweat Equity. We also discussed Capital Market, its meaning and some basic Instruments of capital market.

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