What Are Shares And Their Types?
You have heard of people making tons of money in the share market. Do you ever develop an interest in investing your money in shares instead of saving? If yes, you need to understand what are shares and how the share market works.
Here's a quick look at what you'll read
Shares define the units of equity ownership in a company.
Share capital is the total amount of money a company has raised by issuing equity and preference shares.
- Equity shares
- Preference shares
Equity shares are moveable and trade activities through the investors in the stock market. As an equity investor, you authorize to have voting rights on corporation issues and have the right to receive dividends.
- Authorized stock capital
- Issued stock Capital
- Subscribed stock Capital
- Paid-Up Capital
- Bonus stocks
- Rights stocks
- Sweat equity stocks
- Voting and Non-voting stocks
Preference is the company’s shares with dividends paid to the shareholders before ordinary dividends allocate. If the company enters into insolvency, the preferred shareholders permit to pay from the company.
- Participating
- Non- Participating
- Preference share
- Cumulative preference
- Non-cumulative Preference shares
- Convertible
- Non-Convertible shares
What are the shares of a company?
Shares define the units of equity ownership in a company. For some corporations, stocks live as a financial asset giving for an equal allocation of any profits, and the company may earn in the form of a dividend.
The shareholders of a company stock that pays no dividend do not participate in allocating profits. Rather, they expect to participate in the stock and indices price growth as the company’s profit increases.
What is share capital?
Share capital is the total amount of money a company has raised by issuing equity and preference shares. Share capital is essential to determine the financial health of a company.
Types of shares to invest in
- Equity shares
- Preference shares
They differ based on profitability, treatment, and voting rights in the possibility of liquidation.
What are equity shares?
Equity shares are also called common stocks and contain the bulk of the shares issued by a specific company. These stocks are moveable and trade activities through the investors in the stock market. Investing in company’s share is a popular way of financial trading.
As an equity investor, you authorize to have voting rights on corporation issues and have the right to receive dividends. These dividends not yet fix. The equity investors also participate in any losses the company meets and fix to their invested amount.
Equity stocks are divided into three things.
- Definition
- Share capital
- Returns
Types of equity stocks based on the Definition
Bonus stocks:-Bonus stocks are those stocks that provide free of cost or as a bonus to existing stockholders.
Rights stocks:- The Definition of right stocks is that a firm can offer new shares to their current stockholders or investors at a specific price within a particular period before being given for trading in share markets.
Sweat equity stocks:- These stocks can be provided as a reward for shareholders who contributed substantially as an employee of the company.
Voting and Non-voting stocks: Some stocks have the right to vote. The company can create an anomaly and issue zero rights to its stockholders.
Types of shares based on share capital
Authorized stock capital: This share is also named authorized stock capital or authorized shares. It means the company is legally allowed to issue the maximum number of shares based on its corporate alliance. Companies usually keep some part of their authorized stocks for future financing needs. It also described in balance sheet.
Issued stock Capital:- This means the selected part of the company’s capital has been given to the investors by distributing equity stocks. For example, if the small value of one stock is Rs 300 and the company allocates 30000 stocks, the share capital will be 90 lahks.
Subscribed stock Capital: The investors have subscribed to the part of the issued capital called subscribed share capital.
Paid-Up Capital:-The portion of the money paid through the investors for holding the company’s stocks is paid-up capital. Investors pay the total amount simultaneously, subscribe, and paid-up the capital guide to the exact amount.
Types of shares based on returns
Dividend stocks: A company can decide to issue dividends in the form of new stocks based on pro-data, known as dividend stocks
Growth stocks:- The stocks expect to grow substantially above the average market growth. These shares typically do not pay dividends, but the price of their stocks rises gradually through offering capital profit to investors.
Value stocks:-These stocks trade at lower prices in the stock market than their inherent value. Investors can predict value to enjoy over time, giving them a more valuable stock price and formulate the trading strategy.
What are Preference shares?
Preference shares or preferred stocks. These are the company’s shares with dividends paid to the shareholders before ordinary dividends allocate. If the company enters insolvency, the preferred shareholders permit to pay from the company’s financial assets before ordinary stockholders.
Participating and Non- Participating Preference Share:- Participating Preference shares are those stocks that enable the holders to obtain an excess profit after the company pays the dividend. While Non-participating stocks hold no such advantages apart from the general receipt of dividends.
Cumulative preference and Non-cumulative Preference shares:- Cumulative preference stocks give the shareholder a dividend that may have been missed or reduced in the past. In the case of these shares, If a specific company doesn’t display an annual dividend in these stocks, the advantage is carried ahead of the subsequent financial year. But non-cumulative preference shares do not offer for obtaining certain advantages of dividends.
Convertible and Non-Convertible shares:- Convertible stocks can be converted into common equity or equity stocks after a particular time at a pre-decided price. This share can also convert after meeting the necessary conditions through the company’s Article of Association. Non-convertible stocks bear no benefit and are not converted into equity stocks. But instead, they shall be redeemed after the expiry of their term.
Wrapping up
As of now, you have understood what are shares. Investing is a great way to make money in modern times. If you save money, you get very little interest, but if you invest in the share, forex or any other financial market, there are chances of a whopping profit
However, investing in the share market involves a huge risk. You can also lose your investment amount. Therefore it is important to manage your risk efficiently by understanding shares and the share market.