Shares are the smallest unit of ownership in any enterprise that provides proportional distribution of any profit (if declared) in the form of Dividend. The two main types of shares are common shares and preferred shares. Preferred shareholders have a bigger claim on company’s earnings and assets. Also, they get preference over common shareholders when dividends are distributed.
Generally, dividend for preference shareholders is more than that for the common shareholders. Earlier, shares were issued in physical format. However, now physical paper stock certificates have been replaced with electronic recording of stock shares, just as mutual fund shares are recorded electronically.
These dematerialized shares as they are popularly known, require a Demat account for their storage. Demat account services are provided through the two depositories of India, namely Central Depository Services Limited (CDSL) and National Security Depository Limited (NSDL).
As per the companies act, companies incorporated in India can have two type of share capital, Preference share capital and equity share capital.
As the name suggests, preference shares are preferential in nature which means that when a company liquidates, these shareholders are paid out first. These do not have any voting right in the company.
Equity shares are ordinary shares but these shareholders have a voting right in the company.
Shares can be classified on the basis of market capitalization of the company into the following categories:
• Large Cap Stocks – The stocks of companies which have a market capitalization of more than 28000 Crores.
• Mid Cap Stocks – The stocks of companies which have a market capitalization between 8500 – 28000 Crores.
• Small Cap Stocks – The stocks of companies which have a market capitalization of less than 8500 Crores.
Companies issue shares for a number of reasons. Some of the prominent reasons of issuing shares are:
• Raising new finances
• Company’s market valuation
• To set up mechanism for investors for trading
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