A share is a measurement of ownership in a company. Companies raise funds from the market by issuing shares or debentures, which can be bought by individuals or other companies. The owners of the shares are called Shareholders.
For a private limited company, the shareholders are generally the founders of the company. If the company wants to raise its capital, it can do so through private investors. A public company, on the other hand, would need to issue an initial public offering (IPO) to facilitate the trading of shares in the stock exchange.
Types of Shares
Every share gives the shareholder the right to a company’s profit or loss. Shares have different participative rights and may rank differently in preference when a company undergoes liquidation. There are mainly two types of shares:
Ordinary shares are the most common. The benefits the shareholders enjoy are an equal share in the profits in the form of dividends, voting rights of one per share, and a share of the capital gains when the company winds up its operations. Some companies further categorize ordinary shares to create a certain difference in the class of the shareholders. These are called Alphabet Shares as the classes are divided into Class A, Class B, Class C, and more.
Preference shareholders are given preference over ordinary shareholders when it comes to dividend distribution and liquidation. But they usually don’t have any voting rights or get a share in the capital gains like the ordinary shareholders. Every company decides the rights and benefits of preferential shares based on their requirement, which is mentioned in its Constitution or resolutions passed during meetings. They are normally issued at a higher price compared to an ordinary share due to the privileges they hold.