In simple terms, a share is a percentage of ownership in a company or a financial asset. In other words, a share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value and the total face value of issued shares represents the total capital of a company (that may not reflect the market value of shares). Shares are the smallest denomination of a company’s stocks, indicating a portion of ownership of the company.
Investors who hold shares of any company are known as shareholders. As a shareholder, one stands to benefit in the event of the company’s profit and also bears the disadvantages of the company’s losses. Shares of privately held companies or partnerships are owned by the founders or partners. As small companies grow, shares are sold to outside investors in the primary market. These may include friends, family, or venture capital investors. If the company continues to flourish, it may decide to raise additional equity capital by selling shares to the public, via an initial public offering which is referred to as IPO. After an IPO, a company’s shares are said to be publicly traded and they become listed in a stock exchange.
TYPES OF SHARES :
Broadly, there are two types of shares – Equity Shares and Preference Shares.
• Equity shares – Equity shares are also known as ordinary shares and they consist of bulk shares being issued by a particular company. Equity shares are the long-term financing sources for any company. These shares are issued to the general public and are non-redeemable by nature. Investors in equity shares hold the right to vote, share profits, and claim assets of a company. Equity shares are transferable and traded actively by investors in the share market. As an equity shareholder, you are not only entitled to voting rights on various company issues but are also eligible to receive dividends. However, the amount of dividend issued from the profit incurred by the company is not fixed. Here it is mention-worthy, that equity shareholders are subject to maximum risk, courtesy market volatility, and other factors affecting stock markets. On the basis of definition, equity shares can be classified into Bonus Shares, Right Shares, Sweat Equity Share, and Voting/Non-voting shares.
• Preference Shares – Preference Shares, more commonly referred to as the Preferred Stock, are shares of a company’s stock with dividends, which are paid out to shareholders before the common stock dividends are issued. Thus, these are the next types of shares issued by a company. As compared to ordinary shareholders, preference shareholders receive preference in receiving profits of a company. Not only that but also in the event of liquidation of a company, the preferential shareholders are paid off before ordinary shareholders. Some of the different types of Preference shares include Cumulative/Non-cumulative Preference Shares, Participating/Non-participating Preference Shares, Convertible/Non-convertible Preference Shares snd Redeemable/Irredeemable Preference Shares.
BENEFITS OF INVESTING IN SHARES :
When you buy a share in a company, you are effectively becoming a part-owner of that company. For ages, shares have been considered a very important instrument in the financial market. Some of the benefits of investing in shares include –
• Part ownership of a company.
• Real-time dealing throughout the trading day with the limited offers available when markets are closed.
• Receiving dividends either as income or re-investing to buy more shares.
• Ability to vote on important company decisions.