Understanding Stocks, Shares, and Equities

Stocks, shares, and equities are terms used to describe units of ownership in one or more companies. The owner known as a shareholder will receive dividend payments, as well as voting rights, if the company grants them.

The terms are often used interchangeably, but some technical differences between stocks, shares, and equities are:

  • Stocks is used to refer to portions of ownership of multiple companies
  • Shares refers to units of ownership in a specific company. It can be categorized into two types, namely: Equity shares and Preference shares
  • Equity is the term for a total ownership stake in the company. An example is if a company had 10,000 shares, and you owned 1000 of them, you could say that you held a 10% equity stake in that company

Some terminologies you may come across in your journey to owning shares and stocks in the market:

Authorized Share Capital: Every company, in its Memorandum of Associations, requires prescribing the maximum amount of capital that can be raised by issuing equity shares. The limit, however, can be increased by paying additional fees and after the completion of certain legal procedures.

Issued Share Capital: This implies the specified portion of the company’s capital which has been offered to investors through the issuance of equity shares.

Subscribed Share Capital: The portion of the issued capital as explained above which has been subscribed by investors is known as subscribed share capital.

Paid-Up Capital: The amount of money paid by investors for holding the company’s stocks is known as paid-up capital.

Bonus Shares: They are those additional stocks which are issued to existing shareholders free-of-cost, or as a bonus.

Rights Shares: Right shares meaning is that a company can provide new shares to its existing shareholders, at a particular price and within a specific period before being offered for trading in stock markets.

Sweat Equity Shares: If as an employee of the company, you have made a significant contribution, the company can reward you by issuing sweat equity shares.

Voting And Non-Voting Shares: Although a huge percentage of shares carry voting rights, the company can make an exception and issue differential or zero voting rights to shareholders.

Dividend Shares: A company can choose to pay dividends in the form of issuing new shares, on a pro-rata basis.

Growth Shares: These types of shares are associated with companies that have extraordinary growth rates.

Cumulative And Non-Cumulative Preference Shares: If a company does not declare an annual dividend, the benefit is carried forward to the following fiscal year. Non-cumulative preference shares do not provide for the payment of outstanding dividends.

Participating/Non-Participating Preference Share: Participating preference shares allow shareholders to receive excess profits after the company pays dividends. This is in addition to receiving dividends. Apart from the regular receipt of dividends, non-participating preference shares provide no such benefits.

Investing in shares can prove to be a great source of long-term wealth generation for any individual investor. For more inquiries, send an email to [email protected]

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