What is a Share | Features of Shares | Types of Shares

Shares are a form of investment and ownership in a company. By owning shares, you become a shareholder in the company, which gives you a stake in the company’s success.

There are various types of shares, each with different features and benefits. Here, we’ll explain what is a share, features of shares, and the different types of shares.

Table of Contents

What is a Share

An ownership interest in a company or financial asset is represented by a share. However, holding stock in a company does not provide a shareholder direct control over its daily operations or a right to an equal part of the earnings, even if they are paid out as dividends.

Each share represents a certain percentage of a company’s equity. To match the amount of money you wish to invest, you can choose between purchasing large or small shares.

Depending on a company’s performance or the state of the market, its share price may rise or fall.

Features of Shares

Shares are an important form of investment that can provide investors with a variety of benefits. Some of the most common features of shares include the following:

Potential for Capital Appreciation

When an investor purchases shares in a company, they are betting that the company will increase in value over time.

If the company does well and its stock price increases, then the investor stands to benefit from capital appreciation.

Dividend Payments

Many companies offer shareholders dividend payments as a way to reward them for their investments.

Dividends are usually paid out quarterly, though this may vary depending on the company.

Voting Rights

Many companies allow shareholders to vote on important company decisions, such as electing board members or approving mergers and acquisitions. This gives shareholders an extra level of control over their investments.

Liquidity

Shares are easily tradable on the stock market, meaning they can be sold quickly if needed. This makes them much more liquid than other forms of investments, such as real estate or collectibles.

Tax Benefits

In some cases, investing in shares can provide investors with tax benefits. For example, many countries offer tax incentives for long-term share investments.

Types of Shares

Shares are a nature of security that represents ownership in a company. They can be broadly classified into two categories: common shares and preferred shares.

Common Shares

Common shares are the most basic form of ownership in a company. These shares give the shareholder voting rights and entitle them to dividends if they are declared.

When the company performs well, the share price of common shares increases, allowing shareholders to make a profit.

Common shares also represent the residual ownership of a company after other stakeholders have been paid.

Preferred Shares

Preferred shares offer more protection to the shareholders than common shares do.

They have a higher claim on the assets and earnings of the company, meaning that preferred shareholders receive their dividends before common shareholders do.

In addition, preferred shareholders have the right to accept their initial investment back before any common shareholders are paid out. However, preferred shares usually don’t give the holders voting rights.

Preferred shares also have many types.

Preference shares that are redeemable and unredeemable: The issuing business may claim or repurchase redeemable preference shares.

This could be placed at a predefined cost and moment. These shares are perpetual since they don’t have a maturity date. Companies are therefore not required to pay any money after a set time.

Cumulative Preference Share: When a loss occurs, a cumulative preference shareholder is not compensated. However, unpaid dividends may be used to pay for cumulative shares.

Only after all other shareholders have been paid is a cumulative preference shareholder compensated. They won’t be paid that year if there are no funds left.

Shares of non-cumulative preference: Shares with a non-cumulative preference have preferential shareholder rights and a set dividend payment.

But they are only compensated if there are still earnings. The outstanding balance is not carried over to the subsequent years if there are no profits left.

Participating and not-participating preference shares: These shares are compensated through a combination of earnings and set rates.

Any remaining funds are distributed equally among the shareholders once all earnings have been paid to them.

Exchangeable preference shares: Exchangeable preference shares are preferred shares that have the potential to be converted into equity shares at a later time.

All conversions shall be subject to the provisions of the articles of incorporation of the Company.

Non-exchangeable Preference Shares: Non-exchangeable Preference Shares that cannot be exchanged into Equity Shares are known as Non-exchangeable Preference Shares.

They are referred to as redeemable preference shares as a result. At the conclusion of their tenure, holders of such shares are not entitled to receive equity shares.

These shares have the right to share in any future profits after paying out the equity stockholders.

Other Types

There are also other types of shares such as Class A and Class B shares. Class A shares usually give the shareholders more voting rights, while Class B shares often offer fewer voting rights or no voting rights at all.