To raise a company’s capital, the company opens its shares to which investors buy, and becomes part of the owner of that company by holding the percent of that company’s shares. You should know the shares that exist. Many traders and investors also stayed confused about the terms of stocks and shares; some understand both these terms the same but the difference is that shares are the smallest value of a company’s stocks; i.e. a small percentage of ownership of the company investor held after purchasing company shares.
We broadly classified shares into two types of shares:-
Equity shares, or says, ordinary shares are being traded proactively by every trader in stock markets. If you are an equity shareholder, then you have company voting rights and the right to receive dividends. Though, dividends’ profit percentage is not fixed. Equity shares have a lot of risk because of the market going up and down. In the Indian market, most investors say “shares” that are equity shares and other shares are uncommon among Indian investors and traders.
- Authorized Share Capital – Companies need to declare the maximum amount of capital in their announcement letter that can be taken up by issuing equity shares. However, the limit can be increased by completing all legal checks with extra charges.
- Issued Share Capital – Allotted the specific portion of the company’s capital to investors through issuing of equity shares. For instance, if the nominal value of one stock let’s say ₹100 and the company issues 10,000 equity shares, then the issued share capital will become ₹100 * 10,000 = ₹10 Lakh.
- Subscribed Share Capital – When investors subscribe, they get part of the issued capital, which is called subscribed share capital.
- Paid-Up Capital – A certain amount paid by investors to buy a company’s stocks is known as paid-up capital shares. As investors pay the complete amount at once, therefore, investors get a subscription and paid-up capital shares both in the same amount.
- Right Share – The new shares offered by the company to their existing shareholders inside a specific time frame at a specific price; before providing in the stock market for trading.
- Bonus Share – Additional stocks issued to existing shareholders by the company are called bonus shares.
- Sweat Equity Share – If any employee outperforms in his job and adds value to the company’s work and performance, then the company can reward that employee by issuing sweat equity shares.
- Voting shares and non-voting shares – Most of the shares have a voting rights feature, but the company can make an exceptional case by issuing zero voting rights to shareholders. Shares with Differential voting rights trade at a lower value than ordinary shares. The Tata Motors shares with Differential voting rights are traded along with equity shares, therefore, known as DVR, which comes with voting rights, is not considered the same as equity shares, and it could be 10% of voting rights compared to normal equity shares.
- Dividend Shares – In the form of issuing new shares, the company selects the option to pay dividends, proportionately.
- Growth Shares – Shares that have an extraordinary growth rate are called growth shares. Hence, such companies provide capital gains rather than dividends because of rapid increments in the value of their stocks and shares.
- Value Shares – Value Shares prices have appreciated over some time. We traded these shares in the market at lower prices than their actual value called value shares.
In the Preference type of shares, shareholders get preference in receiving profits of a company as compared to ordinary or also called equity shareholders. Also, in the function of liquidation of the company, the preferential shareholders will be paid off first than ordinary i.e. equity shareholders.
- Cumulative and non-cumulative preference shares- In non-cumulative preference shares, investors don’t receive a pending dividends advantage whereas In Cumulative preference shares, if an investor doesn’t receive his annual dividend benefit this year from a company, then his annual dividend will be outstanding on the company and will get it by next financial year.
- Participating and non-participating preference shares– In Participating preference shares, shareholders gain tremendous profit after having an allotment of dividends by the company. Shareholders’ part of the profit will be reciprocal with the company’s net income profit. As the company’s net income will rise, the shareholders’ share profit will also go up, whereas holders of non-participating shares are limited to the only fixed dividend payment.
- Convertible and non-convertible preference shares– Convertible shares are those shares that can be converted into equity shares after meeting certain eligibility criteria, whereas non-convertible preference shares have not carried such an advantage.
- Redeemable and Irredeemable preference shares – In Redeemable shares, Company can redeem or claim their shares on a certain period and price but not over 10 years comprising certain technical aspects, whereas Irredeemable preference shares carry no such criteria.