Finschool By 5paisa

FinSchoolBy5paisa

What are Shares and Types of Shares

what are shares and types of shares

What Is A Share?

A share is a unit of ownership of the issuing company. There are various factors that affect the  way in which its price moves. When a company performs well and grows, its stock price tends to go up. In such cases, if you’re a shareholder you can sell some of the company’s stocks at a profit. Dividends from any earnings the company makes are owed to the shareholders. Shareholders also bear the brunt of any losses which the business may suffer.

What are categories of shares?

Shares can be broadly categorized as: –

  • Equity Shares
  • Preference Shares

Their differences are determined by their profitability, voting privileges, and handling during a liquidation.

What Are Equities Shares?

Most of the shares that a firm issues are what are commonly said as common stock. Equity shares will be transferred and are actively traded on stock exchanges by investors. As an equity shareholder, you’ve got the proper to dividend payments additionally to voting rights on corporate matters.

However, these pay-outs aren’t constant. Equity investors share in any losses incurred by the business up to the quantity they invested.

What Are The Types of Equity Shares?

Equity Shares can be classified further based on the share capital. Let us further understand the types of equity shares: –

Authorized Share Capital:- Each company is required to specify the utmost amount of capital that may be raised through the issuance of equity shares in its Memorandum of Associations. However, the cap is also raised by completing specific legal processes and paying additional fees.

Issued Share Capital:- the quantity of the company’s capital that has been made available to investors through the issuance of equity shares is denoted by this term. The issued share capital, as an example, would be Rs 40 lakh if the corporation issued 20,000 equity shares at a face value of Rs 200 each.

Known as subscribed share capital, subscription share capital is the portion of the issued capital that has been purchased by investors.

Paid-Up Capital:- The sum of cash that investors have contributed to carry the company’s shares is mentioned as paid-up capital. Both subscribed capital and paid-up capital discuss the identical amount because investors pay the entire amount without delay.

Here may be a have a look at the definition-based classification of equity shares:

Bonus Shares:- The term “bonus shares” refers to extra shares that are given as a present or bonus to current shareholders.

Rights Shares:- A firm can issue new shares to its current owners at a predetermined price and within a selected timeframe before making them available for trade on stock markets.

Sweat Equity Shares:-  If you have made a big contribution to the corporation as an employee, the corporation may prefer to reward you by issuing equity shares.

Despite the very fact that the bulk of shares have voting rights, the firm may prefer to issue shares with differential or no voting rights.

What Are Preference Shares?

In comparison to regular shareholders, preferential shareholders are given preference in receiving a company’s profits. Additionally, preferred shareholders are compensated before common shareholders within the event of a company’s insolvency. the numerous share types of preference shares that make up this category are as follows:

Cumulative And Non-Cumulative Preference Shares:-  Within the case of cumulative preferred stock, the benefit is carried over to the subsequent year if a specific company doesn’t pay an annual dividend. Unpaid dividend advantages aren’t offered by non-cumulative preferred stock.

Participating vs. Non-Participating Preference Shares:- Participating preferred stock permit shareholders to earn excess profits following the company’s payment of dividends. This is often additionally to receiving dividends. Such advantages aren’t present for non-participating preferred stock.

Convertible/Non-Convertible Preference Shares:- While non-convertible preference shares have no such advantages, convertible preference shares can be converted into equity shares after fulfilling the necessary requirements by the company’s Article of Association (AoA).

Redeemable/Irredeemable Preference Share:- At a set price and time, a firm may repurchase or claim redeemable preference shares. There is no maturity date for these shares. However, there are no such restrictions on irredeemable preference shares.

Know More About What Are Common/Equity Shares?

View All