What is a share?
A share is a unit of ownership that represents an equal proportion of the company’s capital. Share is precisely a tool to raise money for a business by offering it to the investors and making them the owners of the company. A company for the following reasons issues shares.
Access the market valuation of the company.
A mode for the investors to trade in shares.
Interestingly, an investor buys the shares as the stock market promises to multiply the funds and help in the financial growth journey of the investor. The funds if kept in a savings account, do not grow if compared with the growth of shares. To buy the shares, a person needs to hold a Demat account. A Demat account is an account that has the records of the shares and securities in an electronic form.
In India, there are two categories of shares; Preference shares and Equity shares or Ordinary shares. Another type of share that one comes across as an ordinary investor is ‘DVR’, which is shares with differential voting rights. DVR shares are allowed in India since 2000.
Preference share capital
The preference share as suggested by the name is preferential in nature. In case of liquidation of the company, the amount due to these shareholders are first cleared after the payment to the creditors have been made. The preference shareholders don’t have any voting rights. Preference shares are also of different types based on their structure, dividend payment, maturity terms, participation, convertibility, redemption, and more.
Equity share capital
Equity shares are ordinary shares. These are the most common types of shares issued in the market. The shares are equal in value and bestow several rights to the shareholders like voting rights, dividend payment, and more. These are shares that are traded in the stock market. The category of shares is issued at face value in the stock market.
They are the shares with differential voting rights. They have limited voting rights, and the company issues them to dilute the equity without any reduction in the promoter’s stake in the company. The share prevents hostile takeovers and secures the economic and voting rights of the equity shareholders.