Understanding a Share

A share symbolises an individual’s or entity’s ownership interest in a company. Businesses can generate capital by issuing shares or debentures to interested persons or corporate entities. Shareholders, as these owners are referred to, often comprise the company founders of private limited firms. These businesses can boost their capital by engaging private investors. Conversely, public companies resort to initial public offerings (IPOs) to enable share trading on the stock exchange.

Shareholders have rights to a company’s profits or losses, with variability in participation rights. In the event of company liquidation, the ranking of these rights might alter. Primarily, shares can be classified into ordinary shares and preference shares.

 

Ordinary Share

Ordinary shares, the most frequently found type, accord holders an equitable share in profit through dividends, voting rights, and capital gains upon company dissolution. Some ordinary shares are further distinguished into Alphabet Shares, such as Class A, B, C, and so forth, indicating variations in shareholder class.

Preference Share

Preference shares, although issued at a higher price, provide holders precedence in dividend distribution and liquidation over ordinary shareholders. However, they do not typically confer voting rights or share in capital gains. Every company defines the rights and privileges of preference shares according to its needs, specified in its Constitution or resolutions approved in meetings.