Share: Meaning, Features, and Types.

हिंदी में पढ़ें:

The term share has different meanings in different fields, but right now we are talking about ownership shares used in business to represent ownership.

Resources are required to run a business, such as land, labour, products, capital, etc., and without these, a business can never run, and for this, the business gets resources from its owner. In businesses like sole proprietorship, partnership, etc., the owner himself invests in the business, but if the business is large-scale, then this is not possible. To overcome this problem, the business turns into a company and raises capital from investors, and in return, gives them ownership in the business, which is done through shares.

Issuing shares is only available in companies, which means a business registered as a company has the power to issue its shares to the investor to obtain capital. Issuing shares is governed by law, and if the business is registered as a listed public company, then the share is governed by the stock exchange board of the country, for example, in India, the Securities and Exchange Board of India regulates the shares of listed companies.

Companies are classified according to their characteristics and different types of companies issue shares in different manner as per the rules made by the governing law, for example in One Person Company only one member subscribe to the entire share, in Private Company minimum two and maximum two hundred persons subscribe to the shares and transfer of shares without approval is restricted, in Public Company minimum seven persons subscribe to the shares but there is no maximum limit, etc.

What is a Share?

A share is a legal instrument used by a business to raise capital from investors, and it represents ownership in the business and a person holding a share is called a shareholder. In simple terms, a share is a portion of capital/ownership in a business that is subscribed to by a shareholder, and a shareholder is entitled to receive dividends as per the nature of their share.

Section 2(84) of the Companies Act, 2013 defines the term share – “Share means a share in the share capital of a company and includes stock.”

Share is transferable and is perpetual in nature, but the transferability of a share is affected by the nature of the company. Share is governed by law, and no business can go beyond its scope. The one who holds the share has the right to attend and vote in the Annual General Meeting (AGM) and Extraordinary General Meeting (EGM) of the company because a shareholder is the owner of the business, but the type of share affects it.

There are generally two types of shares in a company: one is equity shares, also known as ordinary equity shares, and the other is preferred shares. Both types of shares have their own characteristics that make each other different. Generally, equity shares are more powerful than preferred shares because equity shares represent actual ownership of the company.

Features of the Share

Following are the features of the share:

1. Portion

Share is a part of the capital, and each share has equal value. For example, if the capital is Rs 5 lakh and it is divided into Rs 1 lakh, then the value of each share will be Rs 5. Splitting of capital helps in attracting more investors as it becomes easier to buy them. The more shares one has, the more ownership they have in the business, and each share has its own unique number that differentiates it from each other.

2. Instrument

Shares are an instrument used to raise capital from investors, and are used by businesses registered as a company, as only a company has the right to issue shares to raise capital. Issuing shares is governed by law, and the method may vary in different types of companies, but in the case of a listed company, the regulatory body handles all matters.

3. Ownership

Shares represent ownership because it is a portion of the business in the form of capital, so those who have shares also have a corresponding amount of ownership in the business. Those who have more shares have more ownership in the business, and those who have fewer shares have less ownership, so the number of shares affects control over the business.

4. Transferable

Shares can be transferred, or the nature of shares is transferable, which means the person who holds the share can transfer it to someone else, but in some types of companies, certain restrictions apply. For example, transfer of shares in a one person company is restricted, but in a listed public company transfer of shares is not restricted, but it is regulated by the governing body.

5. Perpetual

The existence of a share is perpetual, which means that the existence of the share is not affected by the change of shareholder, it is affected only by the existence of the company. It exists as long as the company exists. As soon as the company closes down, the existence of the share also ends, and if the company has something left after paying everyone else, it is distributed among the shareholders.

6. Governed

Shares are governed by law as it is a legal instrument and have ownership. If a company is listed on the stock exchange, then the stock exchange authority governs it, but if the company is unlisted, then it is governed by the articles of association of the company, but both have the same importance; the only difference is the free trading of shares. The listed company provides free trading of shares, but the unlisted company does not.

Types of Share

Following are the types of share:

1. Equity Share

Equity share is a type of share that represents ownership in a company and is also known as a common share or ordinary share, and some people just know it as a share. It provides shareholders the right to attend and vote in the company meeting, but the nature of the share affects it. It provides shareholders with profits in the form of dividends after paying others. It is unsecured, but it provides real ownership in the company.

2. Preference Share

Preference shares are a type of share that represents ownership in a company and has certain privileges. Preference shareholders get preference at the time of dividends as well as dividends at a fixed rate, and are more secure than equity shares. Usually, a preference shareholder does not have the right to attend and vote in company meetings, but some exceptions applicable.

Read Also:

• Company: Meaning, Features and More.
• Advantages and Disadvantages of the Company
• Types of Companies under the Companies Act, 2013
• Incorporation of a Company: Meaning, Procedure, Advantages and Disadvantages, etc.
• Corporate Veil Theory
• One Person Company: Meaning, Features, and More.
• Private Limited Company: Meaning, Features, and More.
• Public Limited Company: Meaning, Features and More.

QNA/FAQ