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For a Founder of a Company, a mistake or misstep on sales or allotment of shares to the public or investors may cost you dearly, if not your company.

Everybody has a simple knowledge of shares, but as a businessman, investor or entrepreneur or founder; that simple definition might not be enough, knowledge, they say is power.

First things first, what is Stocks and what are shares?

Stocks: these are shares that have been converted into a single holding with a nominal value equal to that of the total shares

Explanation
A holder of 100 shares of #1 Naira each will constitute #100 stock after conversion.

Shares: [/b]This a unit, which represent the interest and liability. It is the "interest In a company"s share capital of a member who is entitled to share in the income of the company, and except where a distinction between stock and shares is expressed or implied, includes stock"

[b]Shares are held in single units, while stock is a lumpholding.

There are different classes of shares, and different reasons why these shares are strategically alloted or sold out to the public. For your company to be able to issue shares it must be a public company registered in Nigeria.

What are classes of shares
They are more of rights than privilege, held by members or shareholders, those members are then referred to as a class. Such shares, held by those members, and without which they would not be members of the class is called "class of shares"

Why classified shares:
Different strokes for different folks. Companies have understood that all animals are not equal, to attract different categories of investors, companies need to have different kinds of shares. Different rights are attached to these different kinds of shares. Where these rights are not contained in the memorandum or article of association, the law has laid down procedures for this, and determine and describe the shareholders right.

Rights attached to classes:
Generally shares confer equal benefits to holders except where otherwise provided by the Articles of the Company. Rights attached to Shares varies and are not always these same.

Major classes of shares?

There are generally 4 major classes

A. Ordinary Shares- This confers no special right neither are any special rights attached to it. In short, these types of shares are not attached with any exclusive or special rights. They are also described as "Equity Shares".
Ordinary shares bear the burden or risk of investment as dividends on them are not fixed.
Ordinary shares shoulder residual rights of participation in the income and capital of the company which have not been taken up by other classes of shares.
Ordinary shareholders have no rights to any fixed dividend on their shares. However, after the payment of any dividends to preference shareholders, the ordinary shareholders enjoy the reminder of the surplus profits actually distributed as dividends by directors.
In difficult periods, dividends may not extend to the ordinary shareholders as the dividend may have been shared among the holders of a preference share (more on preference share later). However in periods of prosperity, the holder of preference shares will be restricted to their fixed dividend and the ordinary shareholder will enjoy all surplus distributed to them.

Scenerio
Legalify Plc has distibutble profits of 30,000 but fixed dividend payable to preferred shareholder swill amount o 20,000 then the ordinary shareholders will share the remaining 10,000. Conversely where where the company has distributed profits of 300,000 the preference shareholders remain entitled as before to their dividend of #20, 000, while the remaining #28,000 will be apportioned to holders of the ordinary shares.
Therefore, holders of ordinary shares run the risk of no dividend or Small dividend, as demonstrated, but they also stand to scoop the pool in the event that the company makes significant profits.
Note the important feature of ordinary shares is that shareholders have a ....................Read More: Visit www.legalify.ng/blog