A share represents a unit of equity interest in a company. Shareholders are entitled to any profits that the company can obtain in the form of dividends. They are also bearers of any losses the company may incur. Simply put, if you are a shareholder in a company, you retain a percentage of ownership in the issuing company in proportion to the shares you purchase.

Shares are also called common stock. These are one of the most common types of stocks. These shares are documents that give investors ownership of the company. Shareholders are the most at risk. Holders of these shares have the right to vote on various company issues. Shares are also transferable, and the dividends paid are part of the profit. It should be noted that shareholders are not entitled to fixed dividends. A shareholder’s liability is limited to the amount of his/her contribution. However, there is no preferential ownership.

Table of Contents

• Types of Shares
• Equity Shares Based on Share Capital
• Equity Shares Based on Definition & Meaning
• Equity Shares Based on Returns
• Preference Shares
• Summary
• FAQs

Types of Shares

Shares may be further divided based on:

• Share Capital
• Definition & Meaning
• Return Value

Equity Shares Based on Share Capital

Authorized Share Capital

All companies must stipulate in their articles of incorporation the maximum amount of capital that can be raised by issuing shares. However, you can increase the limit by paying an additional fee or following certain legal procedures.

Issued Share Capital

This refers to a certain portion of a company’s capital provided to investors through the issuance of shares. For example, if the par value of the shares is Rs 200 and the company issues 20,000 shares, the issued share capital is Rs 40 lakh.

Subscribed Share Capital

The portion of the issued capital subscribed by investors is called the subscribed share capital.

Paid-up Capital

The amount an investor pays to hold shares in a company is known as the paid-up capital. Since the investor pays the entire amount at once, the subscribed and paid-up capital relate to the same amount.

Equity Shares Based on Definition & Meaning

Rights Share

Rights share means that a company can offer new shares to existing shareholders at a specified price within a specified period for trading on the stock exchange.

Bonus Share

Corporations may be able to issue shares as dividends to shareholders. Such sharing is called free sharing or bonus sharing.

Sweat Equity Share

If you make a significant contribution as an employee of the company, the company can reward you by issuing sweat shares.

Voting & Non-Voting Share

Most shares have voting rights, but companies can make exceptions and issue different or zero voting rights to their shareholders.

Equity Shares Based on Returns

Growth-Share

These types of shares are associated with companies that exhibit exceptional growth rates. Such companies may not pay dividends, but the value of their shares will rise rapidly, providing investors with capital gains.

Value Share

These types of shares trade on the stock market at a price below their intrinsic value. Investors can expect the price to rise over time and the share price to rise.

Dividend Share

A company can choose to pay dividends on a pro-rata basis by issuing new shares.

Preference Shares

Preferred shareholders have precedence over common shareholders in the distribution of company profits. Also, if a particular company goes into liquidation, preferred shareholders will be paid before common shareholders. The different types of shares in this category are:

Cumulative & Non-Cumulative Preference Shares

For cumulative preferred shares, it is carried forward and accumulated if the company does not declare a dividend in a particular year. If the company makes a profit in the future, those accumulated dividends will be paid first. Non-cumulative preferred share does not yield dividends. In other words, if there are no future earnings, no dividends will be paid.

Participating & Non-Participating Preference Shares

Shareholders participate in the remaining profits after dividends are paid to shareholders. These shareholders are entitled to dividends more than the fixed dividend in years when the company made more profit. Holders of non-participating preference shares are not entitled to receive any portion of the profits after payment to shareholders. Therefore, if the company has excess profits, it will not receive additional dividends. They only receive a fixed dividend portion each year.

Convertible & Non-Convertible Preference Shares

Convertible preferred stock can be converted into shares after satisfying the required provisions of our Articles of Incorporation (AoA), while the non-convertible preferred stock has no such advantage.

Redeemable & Irredeemable Preference Shares

Redeemable preferred shares can be claimed or repurchased by the issuing company. This can be done at a given price and at a given time. These do not have an expiration date. In other words, these types of shares are perpetual. Therefore, the company is not obligated to pay the amount after a certain period.

Summary

Investing in stocks has proven to be a great source of long-term wealth accumulation for individual investors. Equities offer a wide variety of sectors and industries to choose from, allowing you to diversify your portfolio and reduce risk. Always remember to limit yourself to reliable and trustworthy financial partners to open a Demat account and a trading account.

Further Readings: Click on the link below to read relevant articles.

• What is Demat Account & Trading Account?
• What are Dematerialization and Rematerialization?
• How does a Demat Account work?
• Best Stock Market Books

FAQs

What do you mean by share?

A share represents a unit of equity interest in a company. Shareholders are entitled to any profits that the company can obtain in the form of dividends. They are also bearers of any losses the company may incur.

What is a share in a business?

Shares represent ownership of the company. When a person buys stock in your company, s/he becomes one of the owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

How does a share work?

When you buy a share in a company, you’re effectively becoming a part owner of that company. As a shareholder, with an equity stake in that business, the investment return you earn depends on the success or failure of the company itself.

What are the 2 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. These are one of the most common types of stocks.

Who owns share in a company?

Shareholders

A shareholder is an individual, company, or institution that owns at least a portion of the stock of a company or mutual fund. Shareholders inherently own the company, with certain rights and obligations.

What is stock vs share?

Shares are financial instruments that represent ownership of part of a company. Stocks are financial instruments that represent partial ownership in one or more organizations. Two different shares of a single company may have the same value.

How do people earn from shares?

There are two main ways to profit from shares i.e., capital appreciation and dividends. By investing in stocks, you can expect to benefit from capital appreciation i.e., Profit from capital (invested capital) if stock price rises.

Which is bigger share or stock?

A share is the smallest unit that determines the ownership of a company or individual. A stock is a collection of something or a group of shares. Shares are a part of something bigger i.e. the stocks.