What is a share in stocks | Describe shares in simple words


What is a share and what is a share market

A company’s capital is divided into a limited number of smaller equal units. Each unit is known as a share. 

In simple words, a share is a percentage of ownership in a company or financial asset. 

The investors holding the shares of any company are known as shareholders.

Shareholders have the opportunity to earn dividends in return, with profit distributions based on the company’s share price and overall performance. 

There are several types of shares, including equity shares, preference shares, rights shares, bonus shares, sweat equity shares (where companies issue shares at a discount or for consideration) and employee stock option plans.

Shares represent equity ownership in a corporation or financial assets, which are owned by investors who exchange capital in exchange for these units.

Common shares enable voting rights and potential returns through price appreciation and dividends.

Preferred shares do not offer price appreciation, but can be redeemed at an attractive price and offer regular dividends.

Most companies have shares, but only shares of publicly traded companies are found on stock exchanges.

Classification of Equity Shares on the basis of Share Capital

Have a look at the classification of equity shares on the basis of share capital:

Authorized Share Capital

Every company, in its Memorandum of Association, is required to determine the maximum amount of capital that can be raised by issuing equity shares. 

However, the limit can be increased by paying an additional fee and after completing certain legal procedures.

Issued Share Capital

It refers to the specified portion of the company’s capital, which has been offered to the investors by way of issuance of equity shares.

Subscribed Share Capital

That part of the issued capital, which has been subscribed by the investors, is known as subscribed share capital.

Paid-up Capital

The amount paid by the investors for holding the shares of the company is known as Paid-up Capital. 

Since the investors pay the entire amount in one go, subscribed and paid-up capital refer to the same amount.

Right Shares

These are shares that the company issues to its existing investors. Such stocks are issued to protect the ownership rights of the existing shareholders.

Bonus Shares

Sometimes, companies may issue shares to their shareholders in the form of dividends. Such shares are called bonus shares.




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