A company’s net worth (value) is divided into shares which are held by each member of that company. There are many different types of shares in a private limited company. To better organize your business’s infrastructure, it would suit if you know about them. Therefore, through this post, we are shedding a light on the different types of shares in a private limited company.
Equity Shares: The most common share type
It’s the most common among the pvt ltd shares. Equity can be divided into “equal” and “quality”. These shares hold equal value and are therefore treated in the same way. In this case, if 5 members of a company hold its equities, they also hold all the voting rights that come with holding them.
Preference Shares: Given to the preferred shareholders
Preference shares are given to the preferred shareholders of the company. They are the ones who get paid first. To get the proper meaning into perspective: If the company goes through liquidation, the holders of preference shares are paid earlier than the equity holders.
Furthermore, the preference shareholders get their share of the company profits differently from the equity holders. That said, such members don’t have voting rights within a company.
Equity Shares with differential voting rights: Shares of the top guys
Equity shares are among the special private limited company share types. Its holders are founders and/or CEOs. Such shareholders have a high degree of control of the daily affairs of the company. Now, you must ask: Why they are special? It’s because only a few company are known to issue such shares. For example, Google and FaceBook have such shares. The condition of issuing such share is this:
You should be able to distribute dividends for three years.
To put it in layman’s terms, you can only issue Equity shares with differential voting rights if your pvt ltd company is generating enough profits to pay dividends (part of profits) to the shareholders for 3 consecutive years.
Sweat Equity: Issued to deserving employees
Sweat equity is issued to deserving employees who have been with the company for more than one year. It’s issued to the hard working employees at no cost – meaning that the employees don’t have to pay anything in return of such shares.
ESOP Shares: Shares that motivate the employees to work more for the company
Employee Stock Options Plan allows employees to buy shares of the company who employed them. Used by both small and large businesses, it leverages the employees to work in a mutually beneficial manner. When the employees have an actual stake in the company, they are more motivated to not only fulfil their duties towards the company, but also to contribute towards company’s growth. Like Sweat equity, employees are not required to pay money to own company’s stocks, but rather hard work.
Now you know all there is to know about pvt ltd company shares. For any further queries or, to go one step further and start your own company, feel free to get in touch with us. We are always here to hear your needs and fulfil them.