Equity shares are the type of shares issued by a company. They represent ownership in a company and are also known as common stock or ordinary shares. Equity shares are an important source of finance for companies, enabling them to raise capital and expand their businesses. Equity shareholders have voting rights and can influence the decisions made by the company. Equity shares also entitle the holder to a share of profits when the company declares dividends. In short, equity shares meaning, or equity shares definition is that they are the part ownership of a company and bring with it the right to receive a share of the profits. Now that you know “what is equity share”, let’s discuss the topic further.
The four main types of equity shares are:
Preference shares are equity shares that provide shareholders with a fixed rate of return. These shares are also known as 'preferred stock'. Preference shareholders do not have voting or management rights but are paid dividends before the common shareholders.
Common shares are the most widely held equity shares. Common shareholders have voting rights and are entitled to a share of the profits when the company declares dividends.
Bonus shares are additional shares given to existing shareholders without any additional cost. Instead, the company issues these shares out of its profits or reserves. As a result, bonus shares increase the number of equity shares outstanding, which can positively affect the share price.
Right shares are those offered to existing shareholders at a discounted price. The company issues these shares to raise additional capital. Right shares are issued in proportion to the number of existing shares held by the shareholder.
Here are some characteristics of equity shares:
Equity shareholders are empowered with the right to determine how the business is steered, including selecting the right individuals to be in charge. This is an important factor leading to the success of any company, as effective management produces higher profits and better dividends for its shareholders. Thus, voting rights are essential for the shareholders to ensure that the company is well-run and has a bright future.
Bonus shares are a great way to increase the financial returns of equity shareholders. They are an additional source of profit as they are issued when the company makes higher profits. By increasing the number of equity shares held by an investor without any additional investment, bonus shares can increase the value of the investment when the market price of the shares goes up. This provides shareholders with an additional profit, making bonus shares a great way to benefit from the company's success.
Bonus shares are a great way to increase the financial returns of equity shareholders. They are an additional source of profit as they are issued when the company makes higher profits. By increasing the number of equity shares held by an investor without any additional investment, bonus shares can increase the value of the investment when the market price of the shares goes up. This provides shareholders with an additional profit, making bonus shares a great way to benefit from the company's success.
Liquidity is an important factor to consider while investing in equities. It refers to the ease with which an investor can sell his equity holdings and convert them into cash. Equity shares have no maturity period, so one can easily sell them in the secondary market. This gives investors great flexibility as they can liquidate their holdings whenever required. Furthermore, holding equity shares for an extended period also reaps the rewards of capital appreciation.
For instance, if you have held shares of a company for a long time, and the company has performed well over the years, you could have participated in bonus and rights issues. This could have enabled you to create greater wealth due to the rise in the share price over the years. Liquidity is one of the best features of equity.
Equity shareholders are the company's owners and are thus entitled to a share of the profits. They are also entitled to a share in the company's assets in case of liquidation. In addition, equity shareholders have the right to attend the annual general meetings and influence the decisions made by the company. These are some of the features of equity shares.
Equity investments come with their own set of risks. Here’s a quick look at some of the most common risks.
Thanks to the advent of electronic trading, purchasing equity shares of companies has now become easier than ever. Here’s a short guide on how to get started.
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 | hareholders are usually entitled to a fixed rate of return |
shareholders are entitled to a share of the profits when dividends are declared | hareholders are paid before dividends are declared |
shareholders also claim over the company's assets in the event of liquidation | hareholders have a lower claim |
Alternative investments are options outside the scope of traditional investments, such as stocks, bond, and cash. These investments include real estate, commodities, private equity, hedge funds, and venture capital. They offer a variety of benefits, such as diversification, the potential for higher returns, and the ability to invest in non-traditional asset classes.
Equity shares are an important source of finance for companies. They represent ownership in a company and entitle the holder to voting rights, a share of profits, and ownership rights. Equity shareholders can benefit from capital appreciation and bonus issues and have the flexibility to liquidate their holdings whenever required. However, equity investments might carry a high degree of risk, and the value of the shares can fluctuate significantly.
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