Detailed Analysis of Equity Shares for a Sound Share Investment
Investing in equity shares is a trend in stock markets. Many financially sound investors invest their money in Equity Shares with the objective of earning a considerable profit in the future. Because of the fact that Equity Shares is trending among the investors, it is the major source of finance for any company.
Popular with the name of Ordinary Shares, such shares will allow you to have partial ownership in the company and with this ownership, you avail the right to voting or involvement in the company’s decision making.
Equity share ownership is a bit less secure than Preference Share Ownership as the final capital is first distributed among the Preference Shareholders and then the residual gets diffused among the Equity Share Holders.
Some Qualities of Equity Shares
- Unredeemable Shares
Equity Shares are locked by the company until the business ceases. Such shares cannot be redeemed as they have no maturity date but only expiry date.
- Shareholder’s Right to Vote
Equity Shareholders being a part-owner in the company, have the right to vote in the company’s decision making.
- Rate of Dividend
On winding up, the company distributes the dividends to the shareholders on the basis of surplus. No fixed rate of dividend is decided for Equity Shareholders.
- Right to Control
Equity Shareholders have the right to involve themselves in the company’s decision making related to management or business.
Classification based on the nature of Equity shares:
Each type of Equity shares comes with its own set of pros and cons. There is a variety to choose from based on your personal interests.
- Authorized Share Capital
Authorized Share Capital is the maximum number of shares companies can issue stated in its memorandum. For any modifications in the memorandum, the company has to pay some amount as fees to the legal authorities.
2. Issued Share Capital
The part of authorized shares issued by a company to its shareholders at a nominal value.
3. Subscribed Share Capital
The issued capital in the company which is subscribed by a shareholder on a certain monetary value.
4. Paid Up Capital
The part of subscribed shares the amount for which is paid by the investors. Generally, the company expects the money at the time of issuance of shares, therefore subscribed and paid shares sometimes overlap each other.
- Rights Shares
Rights Shares signifies the shares which are issued to the current equity shareholders simply to protect their existing rights. The shares are not valid for purchasing additional stocks. Such shares are transferable, allowing the holder to sell it in the potential market.
- Bonus Shares
Bonus shares are given as a compliment by the company. It is an offer of free additional share to existing shareholders. The bonus depends upon how many shares are owned by a shareholder. The company’s accumulated earnings which are not given in the form of dividend but in the form of free shares.
- Sweat Equity Share
The shares are issued to the employees as an appreciation of their sincerity towards the company. It is the recognition of the contribution made by either the directors or the employees in the company.
