What are The 2 Types of Shares?
What are The 2 Types of Shares?
We delve into the world of shares, exploring their intricate definitions, classifications, and the impact they have on financial and accounting practices, with a special focus on International Accounting Standard (IAS) 32.
1. Shares Defined under Accounting Standards
Shares represent units of ownership in a company, but their classification under IAS 32 is vital. Shares are considered equity when there's no contractual obligation to transfer cash or other financial assets. Furthermore, when such shares are subsequently sold or disposed of, they can trigger income tax or real property gain tax (RPGT) implications.
2. Two Types of Shares
Our discussion uncovers two primary types of shares:
• Para 3(b) Shares under IFRS 2 - Shares Based Payment
• Real Property Company (RPC) shares
3. Definition of Para 3(b) shares under IFRS 2 - Shares Based Payment
Para 3(b) shares refer to the exchange of assets for shares in a controlled company.
4. Definition of RPC Shares
RPC shares, on the other hand, pertain to shares in a real property company. A company qualifies as an RPC if it meets two conditions: it's a controlled company and owns real property or RPC shares that collectively account for at least 75% of total tangible assets (TTA).
5. When Shares Qualify as Both Para 3(b) and RPC Shares
Intriguingly, there are instances where shares meet the criteria for both Para 3(b) and RPC shares. In such scenarios, the priority lies with Para 3(b). Consequently, these shares won't be categorized as RPC shares, even if the company transitions into an RPC or already is one during the circumstances described in Para 3(b).
Key Summary
In conclusion, shares are the embodiment of ownership in a company and hold significant importance in financial and accounting contexts. Whether they fall under the umbrella of equity or have tax implications can significantly influence financial reporting and strategic decisions for both investors and companies.
Furthermore, the distinction between Para 3(b) and RPC shares plays a pivotal role in understanding a company's standing concerning real property ownership and associated tax considerations.
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