Other Ownership Securities¶
Deferred Shares¶
Deferred shares are a type of shares that have no right to receive dividends either for a specified period or until certain conditions are met. These conditions often include achieving a particular level of profitability or meeting specific performance criteria. Unlike other types of shares, deferred shares prioritize other shareholders' rights to dividends over their own.
Differential Voting Rights (DVRs)¶
Differential Voting Rights (DVRs) refer to shares that grant the holder differential voting rights compared to ordinary shareholders of the company. This means that DVR holders may have either more voting rights or fewer voting rights than ordinary shareholders. Companies issue DVRs to improve their capital structure without relinquishing control or management authority. It allows company promoters to retain control even when new investors are brought in. Unlike normal equity shares, where each share typically carries one voting right, DVRs can provide a varying degree of voting power to shareholders.
No-Par Value Stocks¶
No-par value stocks are issued without a specified par value. Instead, their value is determined by the price at which investors are willing to buy and sell them in the open market. The advantage of issuing no-par value stocks is that it allows companies to issue shares at higher prices in future offerings, providing flexibility in pricing.
Sweat Equity Shares¶
Sweat equity shares are shares issued by a company to its employees or directors as a form of compensation. These shares may be issued at a discount or in exchange for services rendered rather than cash. Sweat equity shares are commonly used to reward individuals who contribute know-how, create valuable intellectual property rights, or make significant value additions to the company.
Creditorship Securities¶
Creditorship securities, also known as debt finance, involve raising funds from creditors rather than equity shareholders. Two major forms of creditorship securities are:
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Debentures: Debentures are debt instruments issued by companies to raise capital. Debenture holders are creditors of the company and are entitled to receive periodic interest payments and repayment of the principal amount upon maturity.
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Bonds: Bonds are similar to debentures but may have varying features and terms. They represent a promise to repay the principal amount along with periodic interest to bondholders.
Creditorship securities provide an alternative means of raising capital for a company without diluting ownership or voting rights, as is the case with equity shares. However, they come with the obligation to repay both interest and principal amounts to creditors within specified terms.
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