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  • 8/3/2019 Shares and Types of Shares-BL


  • 8/3/2019 Shares and Types of Shares-BL



    A joint stock company divides its capital into units of equal denomination.

    Each unit is called a share.

    These units are offered for sale to raise capital. This is termed as issuing

    shares. A person who buys share/shares of the company is called a

    shareholder, and by acquiring share or shares in the company becomes

    one of the owners of the company.

    Thus, a share is an indivisible unit of capital. It expresses the proprietary

    relationship between the company and the shareholder.

    Meaning of share:

    According to the section 2(46) of the Companys Act 1956, share means a

    part in the share capital of the company and it also includes stock except

    where a distinction between stock and share capital is made expressed

  • 8/3/2019 Shares and Types of Shares-BL


  • 8/3/2019 Shares and Types of Shares-BL


    Types of shares:

    Mainly there are two types of Shares:

    1. Equity Shares

    2. Preference Shares

    (a) Cumulative and Non-Cumulative Preference Shares

    (b) Participating and Non-Participating Preference Shares

    (c) Redeemable and Irredeemable Preference Shares

    (d) Convertible and Non-Convertible Preference Shares

  • 8/3/2019 Shares and Types of Shares-BL


    Features of equity shares

    1. Equity Shares are also termed as ordinary shares. Shareholders holding equityshares have the residual right of the company.

    2. They may get higher dividends than the preference shareholders or may get nothingdepending on the profit remained after paying all the expenses and dividendto shareholders.

    3. The share holders holding equity shares are also termed as residual claimants. It is therisk bearing capital of the company.

    4. They don't have preferential right with respect to payment of dividend or in therepayment of capital at the time of winding of the company.

    5. Equity shares are risk bearing shares because they are the actual owners of thecompany when ever company run into losses they have to bear the losses.

    6. Equity share holders enjoys voting right whenever there is a meeting they will enjoyvoting power in electing board of directors.

    7. Equity capital is the permanent capital for the company . The company need not toreturn capital . Company has to repay the capital only at the time of winding up.

    8. Equity shares are easily transfer from one person to another at the stock exchangeaccording to the procedure laid down in the article of association of the company.

  • 8/3/2019 Shares and Types of Shares-BL


    Types of equity shares

    Blue chip shares: Shares of well known companies are called blue chipshares. They must show consistent growth over the years. these shareshave bright future.

    Defensive shares : These shares tend to fall less in bear market comparedto other shares and they provide safe return for investors money.

    Growth shares: It represent the shares of fast growing companies. Theyshow increasing trend of earnings per share. They are good for long terminvestment.

    Sweat shares: They are those shares which are issued to employees by thecompany because of their active involvement in the company's growth,

    these shares acts as reward for dedicated workers present in a company. Cyclical shares:Those shares which involves rise and fall in prices With

    the state of national economy.ex:-construction,automobiles,engineering,banking,etc

  • 8/3/2019 Shares and Types of Shares-BL


    Preference share:They are those shares which are given preference asregards to payment of dividend and repayment of capital.

    As in the case of winding up of the company, their capital is paid back firstand then the equity shareholders are paid. Preference shareholderscannot exercise their voting rights on all the matters.

    Features of preference shares: Return on investment:Preference shares are given preference to get a

    return on investment i.e. dividend. they are paid dividend first out of the

    profits made by a company. Return of capital: These shareholders are paid their capital first in case

    of winding up of the company. Fixed dividend: Preference shares have a fixed rate of dividend and that

    is the reason they are called fixed income securities. Whether the companyhas low or high profits, they are entitled only to a fixed rate of dividend.

    Non-participation in management:Preference shareholders do notparticipate in the management of the company's affairs.

    For example: A company may have earned a profit of Rs 1 crore . It keepshalf that amount within itself. This will be utilised to buy new machineryor more raw material or to reduce its loan with the bank. It distributes theother half as dividend.

  • 8/3/2019 Shares and Types of Shares-BL


    Types of preference share:

    1. Cumulative and Non-Cumulative Preference Shares:-Theholders of the cumulative preference shareholders have the right to claim

    the unpaid dividend either of the current year or previous years, whetherthe company has earned profits or not.

    Non cumulative preference share:- Non-cumulative

    preference shareholders are paid dividend only in case the company hasearned the sufficient profits. In case of loss, they cannot claim for thedividend either of the current or previous year.

    2. Participating and Non-Participating Preference Shares:-The holders of the participating preference shares have the right to claim

    for the dividend in addition to their fixed dividend on the surplus profits,which remains after meeting the claims of equity shareholders. Thesurplus profit is shared between preference and equity shareholders.

    Non participating shares:They are entitled to only fixed rate ofdividend. They cannot claim for a part in surplus profits of the company.

  • 8/3/2019 Shares and Types of Shares-BL


    3. Redeemable And Irredeemable Preference Shares:-

    Redeemable preference shares : They are those shares which can beredeemed from the shareholders after a fixed period of time by makingpayment to them. But the company must be authorised by its Articlesof Association.

    Irredeemable Preference Shares : they are those shares which cannotbe redeemed from the shareholders during the life span as the Articlesof Association does not authorise them.

    4. Convertible and Non-Convertible Preference Shares:-

    Convertible Preference Shares are those shares which can beeasily converted into equity shares any time.

    Non-Convertible Preference shares:They are those shareswhich do not have the option of their conversion into the equity shares.

  • 8/3/2019 Shares and Types of Shares-BL


    Process of share market

    First let us understand the Working of a share market

    When a person want to buy/sell shares in the share marketthen he has to first place the order with a broker or can do

    themselves using online trading systems.

    When you place the buy order, the message is transferred tothe exchange [either NSE {National Stock Exchange} or BSE{Bombay Stock Exchange}] and the order stays in the queue of

    exchange's other orders and gets executed if the price of thatshare comes to that value. Once you get the confirmation ofthis transaction, the shares purchased, will be sent to yourDEMAT account. The shares will be stored in demat accountin electronic format.

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    What is Demat account and why it is required?Securities and Exchange Board of India (SEBI) is a board of Indiaappointed by the Government of India in 1992 with its head office atMumbai. In another word it is the regulator for stock exchanges. Itmonitors and regulates both stock exchanges in India

    Demat (short form of Dematerialization) is the process by which aninvestor can get shares (also called as physical certificates)convertedinto electronic form maintained in an account with the DepositoryParticipant (DP).

    DP could be organizations involved in the business of providingfinancial services like banks, brokers, financial institutions etc. DPs

    are like agents of Depository.

    Depository is an organization responsible to maintain investor'ssecurities (securities can be shares or any other form of investments) inthe electronic form.

  • 8/3/2019 Shares and Types of Shares-BL


    Investors wishing to open Demat account has to go to DP and open theaccount.

    Opening the Demat account is as simple as opening the saving bank

    account with any bank. As you need bank account to save money,deposit cheques etc, likewise you need to have a demat account to buyand sell stocks in share market and to hold the shares.

    All shares what you own will show in your demat account, so you don'thave to possess any physical certificates. All your shares are all held

    electronically in your demat account. As you buy and sell the shares,accordingly, your shares will get adjusted in your demat account.

    How to open a Demat account?

    You will need the following details while opening the demat account:

    Name of account holder

    Mailing address

    Bank account details

    Guardian details for minors

    Nomination declarations

    S l f k k

  • 8/3/2019 Shares and Types of Shares-BL


    Speculators of stock market Speculation has a special meaning when talking about money. The

    person who speculates is called a speculator. A speculator does notbuy goods to own them, but to sell them later. The re


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