What Are Shares: Meaning, Definition, Understanding Shares, Types of Shares, Types of Shares PDF, Why Company Issue Shares, Why trade shares
To start any business and enhance or grow any business needs money, for that company’s worth is divided into equal units of small parts, which are called shares.
To raise money company sells shares to the public. For example- Mr. Z is a businessman and he runs a company named ABC.
The current value of ABC company is 50 Lakh. Mr. Z has no money and Mr. Z needs 40 Lakh more to grow the company’s ABC business.
So the ABC company will issue shares worth Rs 40 lakh at a face value of Rs 10. Then the public buys the share from the company and Mr. Z gets $40 Lakh to grow the company.
Shareholders get a small ownership percentage in the company as respective they bought shares of the company.
shares are the ownership percentage in the company on buying when you buy some share of any company. Some ownership percentage of a company changes.
Before IPO Companies are Pvt. Ltd.
After IPO Companies are Public Ltd.
What Are Shares
What are the shares in a company?
Share refers to a share or portion of a large sum of money that is divided among many people or to which many people contribute. According to the name, the work of shares in a company is also done.
In very simple words, you understand what a share is, shares make anyone the owner of the company, in the proportion in which he buys the shares of that company.
Generally, Shares represent the small ownership in equity of a company. When a person buys shares of a company, he becomes one of the owners of the company or we can say, he is the part of company’s profit or loss directly.
Shareholders have some responsibilities or rights in a company, they can choose who runs a company and are involved in making key decisions, such as whether a business should be sold or spread to other countries.
Types of Shares
When a company first time goes public, it may issue different types of shares or we can say different classes of shares. Below are the different types of shares include.
1. Ordinary Shares
The most common type of shares is Ordinary shares. Ordinary shares give voting rights to shareholders but do not give them the right of receiving or demand dividends.
Companies divide their ordinary shares into different classes along with different rights included with each class. Ordinary shareholders receive fewer dividends compared to preference shareholders.
2. Preference Shares
Preference shares provide preferential rights to shareholders like rights to fixed dividends, priority to dividends over ordinary shares and to return capital when the company goes into liquidation.
3. Redeemable Preference Shares
The company may redeem redeemable preference shares at an agreed value on a specified date or at the discretion of the directors. Redeemable preference shares allow for the repayment of the principal share capital to the shareholders.
4. Convertible Preference Shares
As the meaning of convertible refers to convert or change. The convertible preference shares usually carry rights to a fixed dividend for a particular term.
At the end of the term, the company can choose to convert it into ordinary shares or leave them as they are. Conversion prices must be specified in the company’s constitution.
5. Treasury Shares
Treasury shares are the company’s ordinary shares, Which were also acquired from shareholders but the shareholders of the treasury shares are not allowed the right to attend meetings and vote in the meetings. Also, no dividend may be paid to treasury shares shareholders.
Why Company Issue Shares
The main motto of companies behind issues stock is to raise capital from investors for the expansion of business for the company’s future growth.
The company can expand its business operations only if the company has money so this is one more reason for the company to issue shares.
Sometimes companies raise capital by issuing stock to launch new projects or to expand their business to the next level. The company used investor money for the development or growth of the company.
Why Trade Shares
People generally trade in shares to enhance their financial health, to trade in shares in specific business stock is their individual decision.
In my viewpoint, people trade in shares to make a profit from it but for the newbie, investors should be very careful about their investment. They never invest their all money in one stock.
First, newbie investors should be learning to form their small investments and when they will be confident enough for their decision to invest in shares they go ahead with a good strategy.
It is good to trade in shares or not? The answer is pretty simple when you have experienced along with patience, discipline and a good strategy.
Q : What are shares in simple words?
Ans : In very simple words, you understand what a share is, shares make anyone the owner of the company, in the proportion in which he buys the shares of that company.
Q : What are shares in a business?
Ans : Shares represent the small ownership in equity of a business. When a person buys shares in a business, he becomes one of the owners of the company and he is the part of company’s profit or loss directly.
Q : What is the difference between stocks and shares?
Ans : Stock represents the ownership in all companies in which you have ownership after buying shares whereas shares represent specific company ownership.