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 than, they expect to participate in the growth of stock price as the profit of the company increase.
Shares can also be classified into two types
They differ based on their profitability, treatment, and voting rights in the possibility of liquidation.
Meaning of Equity Shares
Equity shares are also called common stocks and contain the bulk of the shares issue by a specific company. These stocks are moveable and trades actively 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. These dividends not yet fix.
The equity investors also participate in any losses the company meets and fixed to their invested amount.
Equity stocks divided into three things
- Share capital
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 provide as a reward for shareholders who created a substantial contribution as an employee of the company.
- Voting and Non-voting stocks: Some stocks have rights to voting. 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 also name as authorized stock capital or authorized shares. It means the company legally allow 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.
- Issued stock Capital:- This means the selected part of the company’s capital has given to the investors through the distribution of 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 lakh.
- 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 at a substantial growth rate above the average market growth. These shares typically do not pay dividends, but the price of their stocks rises gradually through offering the capital profit to investors.
- Value stocks :-These stocks trade at a lower price in the stock market than their inherent value. Investors can predict value to enjoy over time, giving them a more valuable stock price.
Preference shares or preferred stocks. These are the company’s shares with dividends pay to the shareholders before ordinary dividends allocate. If the company enters into insolvency, the preferred shareholders permits 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 dividend paid by the company. While Non-participating stocks hold no such advantages apart from the general receipt of dividends.
- Cumulative preference and Noncumulative Preference shares:- Cumulative preference stocks give the shareholder a dividend that may have 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 carry ahead of the subsequent financial year. But Noncumulative 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.