The profits of a company are generally distributed to shareholders by the company paying dividends. Ordinarily, the company may only declare a dividend if there are profits available, and a shareholder will be entitled to receive dividends in the order and amount determined by the class of share held.
A company may have as many different classes of shares as it wishes, all with different conditions attached to them. The most common shares are described as ordinary shares (US: common stock), which generally have no special rights or restrictions, although there may be more than one class of ordinary shares within the company carrying different voting rights. The company may issue preference shares (US: preferred stock) entitling their holders to some kind of preferential right, such as entitlement to a dividend in priority to holders of other share classes or priority in repayment of capital in a winding up. The preference shares may be described as cumulative, meaning that if the dividends are unpaid, the unpaid amount will accumulate and must be paid before any dividend can be paid on the ordinary shares.
The company may issue redeemable shares, which are shares able to be bought back by the company at the option of the company or the shareholder or on a certain date, provided that at the time of the issue, there is at least one other class of issued shares in the company which is not redeemable. Convertible shares are shares which are expressed to convert into a different class of shares upon the occurrence of a certain event. They can be used to transfer rights between various shareholders. Participating shares are shares that carry the right to a dividend if the company’s profits reach a certain level (or some other financial target is reached). Deferred/founder’s/management shares are shares that only qualify for consideration for a dividend or rights to receive a return of capital after a certain prescribed minimum has been paid to every other class of shareholder.