Types of Shares: Classification and Rights in Company Law

Question 1

Which of the following is NOT a type of preference share?

Accepted Answer

Common shares

Answer

Cumulative preference shares

Answer

Participating preference shares

Answer

Redeemable preference shares

Question 2

What is the primary characteristic of ordinary shares?

Accepted Answer

Carry residual rights and risks

Answer

Receive fixed dividends

Answer

Have priority in liquidation

Answer

Have limited voting powers

Question 3

Which type of shares allows shareholders to accumulate unpaid dividends in arrears?

Accepted Answer

Cumulative preference shares

Answer

Non-cumulative preference shares

Answer

Participating preference shares

Answer

Deferred shares

Question 4

What is the main advantage of issuing redeemable preference shares?

Accepted Answer

Provides flexibility in capital structure

Answer

Attracts investors seeking long-term stability

Answer

Reduces the company's cost of capital

Answer

Enhances shareholder control

Question 5

Which of the following is a characteristic of participating preference shares?

Accepted Answer

Can participate in surplus profits after ordinary shareholders have received a fixed dividend

Answer

Receive dividends before ordinary shareholders

Answer

Rank behind ordinary shareholders in liquidation

Answer

Have unlimited liability

Question 6

What is the primary distinction between types of shares based on voting rights?

Accepted Answer

Voting shares and non-voting shares

Answer

Common shares and preferred shares

Answer

Ordinary shares and preference shares

Answer

Equity shares and debt shares

Question 7

Which of the following is NOT a factor that can affect the voting rights of shareholders?

Accepted Answer

Number of shares owned

Answer

Class of shares held

Answer

Company's articles of association

Answer

Shareholder agreements

Question 8

What type of shares typically have the most voting power?

Accepted Answer

Ordinary shares

Answer

Preference shares

Answer

Deferred shares

Answer

Redeemable preference shares

Question 9

Preference shares do NOT typically have which of the following characteristics?

Accepted Answer

Voting rights

Answer

Priority in distribution of dividends

Answer

Priority in repayment of capital

Answer

Fixed dividend rate

Question 10

Which type of share typically carries the right to vote at shareholder meetings?

Accepted Answer

Ordinary shares

Answer

Preference shares with voting rights

Answer

Non-voting shares

Answer

Cumulative preference shares

Question 11

What is the primary difference between redeemable and irredeemable shares?

Accepted Answer

Redeemable shares can be bought back by the company, while irredeemable shares cannot.

Answer

Irredeemable shares carry voting rights, while redeemable shares do not.

Answer

Redeemable shares have a fixed maturity date, while irredeemable shares do not.

Answer

Irredeemable shares are typically issued with a higher dividend rate than redeemable shares.

Question 12

Which of the following is a type of share that offers both voting and non-voting classes?

Accepted Answer

Hybrid shares

Answer

Non-voting preference shares

Answer

Multiple voting shares

Answer

Participating preference shares

Question 13

What is the purpose of issuing cumulative preference shares?

Accepted Answer

To ensure that preference shareholders receive their dividends in full, even if the company has insufficient profits in a particular year.

Answer

To give preference shareholders a higher voting power compared to ordinary shareholders.

Answer

To provide tax benefits to the company as dividends paid on cumulative preference shares are tax-deductible.

Answer

To attract investors who are seeking a stable and predictable income stream.

Question 14

Which of the following is a risk associated with investing in participating preference shares?

Accepted Answer

The dividend rate may fluctuate depending on the company's profitability.

Answer

Preference shareholders may have limited voting rights.

Answer

The company may prioritize ordinary shareholders over preference shareholders in the event of liquidation.

Answer

Participating preference shares may not offer any capital appreciation potential.

Question 15

What is the key distinction between authorized shares and issued shares?

Accepted Answer

Authorized shares represent the maximum number of shares that a company can issue, while issued shares are the actual number of shares that have been allotted to shareholders.

Answer

Issued shares carry voting rights, while authorized shares do not.

Answer

Authorized shares are always fully paid-up, while issued shares may be partly paid-up.

Answer

Authorized shares are created when a company is incorporated, while issued shares are created when shares are subscribed by investors.

Question 16

How does share classification affect the rights and responsibilities of shareholders in a company?

Accepted Answer

Share classification determines shareholder rights and responsibilities related to dividends, voting, and capital distribution.

Answer

Share classification has no impact on shareholder rights and responsibilities.

Answer

Only common shareholders have rights and responsibilities.

Answer

Only preferred shareholders have rights and responsibilities.

Question 17

Which of the following is a key characteristic of ordinary shares?

Accepted Answer

Guaranteed voting rights

Answer

Limited liability

Answer

Fixed dividend payments

Answer

Priority in distribution of assets

Question 18

What type of share typically carries a fixed dividend entitlement?

Accepted Answer

Preference shares

Answer

Ordinary shares

Answer

Deferred shares

Answer

Redeemable shares

Question 19

Which category encompasses special types of shares with unique features?

Accepted Answer

Special shares

Answer

Ordinary shares

Answer

Preference shares

Answer

Deferred shares

Question 20

What impact does the issuance of redeemable shares have on a company's financial position?

Accepted Answer

Creates a financial liability

Answer

Increases authorized capital

Answer

Reduces issued share capital

Answer

Enhances shareholder voting power

Question 21

What is the primary objective of pre-emption rights?

Accepted Answer

Safeguard proportionate ownership for existing shareholders

Answer

Facilitate new investment opportunities

Answer

Protect creditor interests

Answer

Prevent share value dilution

Question 22

What is a potential legal consequence of failing to comply with pre-emption rights during share issuance?

Accepted Answer

Invalidation of the share issue

Answer

Criminal prosecution of directors

Answer

Loss of voting rights for affected shareholders

Answer

Restriction on share transferability