What are shares of a company?
Articles
Introduction
In India’s evolving economic landscape, a company’s shares serve as the foundation of business ownership and investment. Instead of being owned by a single person, ownership is divided into smaller units by allocating shares, these are the company’s shares. Acquiring shares means securing a fractional stake in a company, granting the shareholder a proportional claim on its assets and earnings.
Types of Shares in India
Indian company law broadly classifies shares into two main types:
Equity Shares: These are the most common type, signifying basic ownership in a company. Equity shareholders typically have voting rights, allowing them to participate in major company decisions, such as electing directors. Their dividends depend on the company’s profitability and are paid after preference shareholders.
Preference Shares: These shares come with advantages over equity shares, particularly in terms of receiving fixed dividends and capital repayment during liquidation. Preference shareholders have voting rights on ordinary matters as well as issues affecting their interests and every resolution placed during meetings.
Who owns Shares?
Shares are held by various stakeholders in a company, including:
- Promoters/Founders
- Investors
- Employees
- Public Shareholders
Ways to acquire Shares
Shares can be obtained through various methods:
- Primary Market (IPO/FPO): Purchasing shares during a company’s initial or subsequent offerings via a Demat and trading account.
- Secondary Market: Trading existing shares of listed companies via stock exchanges like NSE & BSE through registered brokers.
- Rights & Bonus Issues: Existing shareholders can buy additional shares at a discounted rates.
- Private Placements: Companies offer shares privately to selected investors.
- Employee Stock Options: Employees receive the option to purchase company shares at a set price.
- Unlisted Shares: Investing in shares of private companies before they go public.
Why shares matter in the Indian economy
Shares play a crucial role in India’s financial ecosystem:
- Capital formation: Helps businesses raise funds for growth and expansion.
- Investment opportunities: Enables individuals and institutions to build wealth.
- Liquidity: Stock exchanges provide an easy buying and selling platform.
- Corporate Governance: Shareholders have rights that ensure transparency.
- Wealth creation: As companies grow, share values rise, benefiting investors.
- Economic indicator: Stock market trends reflect national economic health.