What are Equity Shares?

By Bajaj Broking Team

6 October 2026

10 mins read

Share Market

Summary:

Equity shares are units of ownership in a company, making the investor a part-owner. Usually traded on exchanges like the NSE/BSE, companies issue equity shares to raise capital. There are several types of equity shares, with features related to ownership and profit sharing.

When a company needs money to grow its business, it can sell small parts of its ownership to people. These small parts are called equity shares. In simple words, equity shares mean you own a piece of the company. In other countries, they may also be called common stock or ordinary shares.

By buying equity shares, you become a part-owner of the company. This gives you certain rights, like voting on important company matters and receiving a part of the profits when the company does well. Profits shared with shareholders are called dividends.

Types of Equity Shares

A company may issue equity shares in a number of forms to fulfil the specific needs of the firm and its shareholders. Equity shares are ownership in a firm; however, there can be several classes of shares with distinct features or benefits.

The knowledge of these categories will allow the investor to become acquainted with the structure of the share capital and the rights of shareholders of the company.

1. Preference Shares

Preference shares give their owners a fixed return. They are called “preferred stock” in some places because these shareholders are paid dividends before common shareholders.

2. Common Shares

These are the most popular type of shares. Owners of common shares have the right to vote on company matters and can also get dividends when the company makes profits.

3. Bonus Shares

Sometimes a company rewards its existing shareholders with extra free shares. These are called bonus shares. They come at no extra cost to the shareholder because they are issued from the company’s profit reserves.

4. Right Shares

Right shares are new shares that a company offers to its current shareholders at a discounted price. These are given in proportion to how many shares a shareholder already owns.

Features of Equity Shares

Equity shares represent ownership in a company and carry certain rights and features. The shareholders can participate in the growth of the company, avail the benefits proclaimed by the company, and take part in the crucial decisions of the company.

These traits help in distinguishing equity shares from other investment products accessible in the financial markets.

1. Voting Rights

Shareholders get the right to vote on important matters, such as who should manage the company. Good management can lead to higher profits, which means better dividends for shareholders.

2. Extra Profits through Bonus Shares

When a company makes higher profits, it may issue bonus shares. These increase the number of shares you own without spending extra money.

3. Liquidity

Equity shares are easy to buy and sell in the stock market. This means you can quickly turn your shares into cash whenever you want. Unlike fixed deposits or bonds, equity shares don’t have a maturity date.

4. Ownership Rights

Equity shareholders are real owners of the company. They get share in the profits and also have rights to the company’s assets if it ever closes down. They can attend annual meetings and influence company decisions through voting.

Why Should You Invest in Equity Shares?

People invest in equity shares for many reasons. Here are some important ones:

Capital Appreciation: Share prices may rise over time, increasing the value of your investment.
Dividend Income: Many companies share part of their profits as dividends, giving you regular income.
Ownership and Voting Rights: As a shareholder, you are part-owner of the company and can vote on major issues.
Liquidity: Shares can be bought or sold quickly in the stock market whenever you need money.
Protection against Inflation: Over time, shares usually grow faster than inflation, protecting your money’s value.
Diversification: You can spread your money across different companies and industries to reduce risk.

Pros and Cons of Equity Shares

Equity shares are often considered by investors who want to participate in a company's journey over time. But the experience isn’t always the same. Prices can go up or down, and how well a company does can affect returns.

However, investors should also be aware of what can affect the value of their investments, and what growth prospects exist.

Advantages

Capital GainIf the price of the shares increases, you can sell them at a higher price and make a profit.
Limited LiabilityIf the company suffers losses, shareholders do not have to pay from their own pocket. You can only lose the money you invested, nothing more.
Control over the CompanyEquity shareholders are considered the real owners. They can vote on important company matters, such as choosing directors or approving big decisions.
Claim over Assets and IncomeIn case the company shuts down, shareholders have a right to whatever is left after all debts and expenses are cleared.
Stock SplitsSometimes companies split their shares to make them more affordable. This can attract more buyers and increase the value of your investment.

Disadvantages

High RiskThe stock market is unpredictable. Share prices can go up or down due to economic changes, government policies, or market mood.
Price FluctuationsShare prices can change daily. One week you may see a profit, and the next week you may see a loss.
Limited ControlAlthough shareholders can vote, most small investors do not have much real power over company management.
Residual ClaimShareholders are the last to get paid if the company closes. First, the company pays debts, employees, and other expenses. Only then do shareholders get whatever remains.

Risks of Investing in Equity Shares

Investing in equity shares is not without risks. Here are the main ones:

1. Economy Risk

If the country’s economy is doing poorly, most companies’ shares will also perform badly.

2. Financial Risk

A company with low profits or high debt may see its share prices fall.

3. Industry Risk

Industries do not always grow. For example, some industries may slow down due to new technology or changes in demand. This affects share prices.

4. Exchange Rate Risk

Companies that earn money from other countries are affected by changes in foreign exchange rates. If the value of the local currency falls, profits may drop.

Additional Read: Difference Between Equity and Preference Shares

How to Buy Equity Shares?

Online trading platforms have made it easier to buy shares. Investors can open a demat account, get market information, and place orders digitally.

The procedure can differ amongst intermediaries, but it usually entails opening the requisite accounts, choosing a security, and placing an order on a registered trading venue.

Since shares are now mandatorily required to be held electronically, you need to first open a demat account with a Depository Participant. A demat account is used to digitally store the shares that you purchase online.
Once you’ve opened a demat account, the next step is to open a trading account with a stockbroker. A trading account lets you purchase and sell equity shares and other securities online.
With the trading and demat accounts up and running, the next step is to log into your stockbroker’s trading portal.
Upon logging in, all you need to do is enter the name of the stock in the search bar and enter a few details such as the number of shares and the price at which you wish to buy.
Once you’ve entered all the relevant details, proceed to place the order. The requisite funds will be debited from your trading account so make sure to first keep your account well funded.
The buy order will be placed and sent to the relevant stock exchange where it will be matched with a similar sell order.

Difference Between Equity Shares and Preference Shares

Equity shares and preference shares both constitute ownership in a firm but have certain differences in rights and rewards.

The difference is usually with voting rights, dividend payments and claims on the company’s assets. Understanding the differences can help investors understand where each class of stock fits within the capital structure of a company.

Additional Read: Difference Between Equity and Preference Shares

Equity Shares	Preference Shares
shareholders have voting rights	shareholders do not have voting rights
shareholders have a greater say in the running of the business	shareholders are usually entitled to a fixed rate of return
shareholders are entitled to a share of the profits when dividends are declared	shareholders are paid before dividends are declared
shareholders also claim over the company's assets in the event of liquidation	shareholders have a lower claim

What are the Alternative Investment Options?

Not everyone wants to invest in equity shares. There are other investment options too, such as:

Real Estate: Buying property like houses or land.
Commodities: Investing in gold, silver, oil, or other goods.
Private Equity: Investing directly in private companies.
Hedge Funds: Special funds that use advanced strategies to earn returns.
Venture Capital: Investing in new businesses or start-ups with high growth potential.

These alternatives can give good returns but may also carry their own risks.

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Frequently Asked Questions

What are the differences between common shares and bonus shares?

Common shares provide regular ownership and voting rights, while bonus shares are additional shares given to shareholders without any cost, typically issued from a company's reserves.

How do voting rights with equity shares affect corporate decisions?

Equity shareholders have voting rights that allow them to influence key decisions like mergers, board appointments, and company policies.

What are the potential additional profits associated with investing in equity shares?

Investors can earn additional profits through dividends and capital appreciation, as equity shares can increase in value based on company performance.

How does the liquidity of equity shares compare to other types of shares?

Equity shares are highly liquid, meaning they can be easily traded on the stock market, unlike some other forms of investment like bonds or real estate.

What specific ownership rights do equity shareholders have compared to preference shareholders?

Equity shareholders have voting rights and participate in capital appreciation, while preference shareholders receive fixed dividends and have priority in asset distribution but usually lack voting rights.

How can equity shares be used to hedge against inflation?

Over the long term, equity shares tend to outperform inflation, making them a valuable investment for preserving and growing wealth in an inflationary environment.

What are the long-term vs. short-term benefits of holding equity shares?

Long-term benefits include higher capital gains and dividend payouts, while short-term benefits can come from price volatility and quick trading opportunities.

Are there any tax advantages or implications when investing in equity shares?

Equity shares may qualify for capital gains tax exemptions if held for a long-term period, while short-term gains are taxed at different rates depending on the holding period.

How does the risk of equity shares compare to that of other investment options like bonds or real estate?

Equity shares are considered riskier than bonds or real estate, but they offer higher returns in the long run, especially for investors willing to accept short-term volatility.

What are some practical steps for a beginner to start buying equity shares in the stock market?

Beginners can start by opening a Demat account and trading account with a registered broker, researching the stock market, and investing in blue-chip or well-established companies.

How are equity shares valued in the stock market?

Equity share prices are not set by any single rule. They move because people trade them all the time. When interest in a company builds, prices move up. When confidence drops, prices slide.

What factors influence the price of equity shares?

A share price changes for many reasons, and not all of them are logical. Company performance matters, but so do news stories, market mood, global events, and sometimes plain speculation.

How do dividends work for equity shareholders?

Dividends are paid only when a company chooses to share profits. Some years they pay, some years they do not. The decision depends on profits, future plans, and how the company wants to use its money.

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