Shares

SHARES

A part or portion of a company which is divided among a number of people, or to which a number of people contribute.

The capital obtained by issue of sharesis known as share capital. The capitalof a company is divided into smallunits called shares. Each share hasits nominal value. For example, acompany can issue 1,00,000 sharesof Rs. 10 each for a total value of Rs. 10,00,000.

Current price of share- Market Value

Introductory price- Face Value​

ISSUE OF SHARES

TYPES OF SHARES

The person holdingthe share is known as shareholder.There are two types of shares normallyissued by a company. These areequity shares and preference shares.The money raised by issue of equityshares is called equity share capital,while the money raised by issue ofpreference shares is called preferenceshare capital.

Subject | Subject

Types of shares- part 2

The preference shareholders enjoy a preferential position over equity shareholders by receiving a fixed rate of dividend before the latter.

preference shares

Equity shareholders do not get a fixed dividend but are paid on the basis of earnings by the company.

equity shares

HOTS​

IF YOU WERE TO BUY A SHARE AT A FAMOUS COMPANY, WOULD YOU PREFER TO BUY EQUITY SHARES OR PREFERENCE SHARES? WHY OR WHY NOT? HOW WOULD YOUR DECISION CHANGE IF THE COMPANY IS NOT WELL REPUTED?

MERITS OF EQUITy SHARES

1. Equity shares are suitable for investors who are willing to assume risk for higher return.

2. Payment of dividend to the equity shareholders is not compulsory. How is this helpful?

3. Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of acompany.

MERITS OF EQUITy SHARES

1. Equity capital provides credit worthiness to the company andconfidence to prospective loan providers. Which source DOES NOT?

2. Funds can be raised through equity issue without creating any charge on the assets of the company. The assets of a company are, therefore, free to be mortgaged for the purpose of borrowings, if they need be.

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what can be demerits of equity shares?

It's time to think from what we have learnt.

Multiple Choice

Equity shareholders are also called

• Owners of the company

• Partners of the company

• Executives of the company

• Guardians of the comapny

Multiple Choice

Ruel sold his shares at rs 1.25. How much will I pay for 500 shares?

• Rs 625.00

• Rs 1250.00

• Rs 500.00

• Rs 250.00

preference shares

The capital raised by issueof preference shares is calledpreference share capital. The preference shareholders enjoy a preferential position overequity shareholders in two ways:(i) receiving a fixed rate of dividend, out of the net profits of the company, before any dividend isdeclared for equity shareholders;and (ii) receiving their capital after the claims of the company’screditors have been settled, at the time of liquidation

Subject | Subject

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Multiple Choice

The value of a share when it is first issued.

• brokerage

• face value

• dividend

• market value

Multiple Choice

The current price of a share.

• brokerage

• face value

• dividend

• market value

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Subject | Subject

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MERITS OF PREFERENCE SHARES

1. Prefernce shares provide reasonably steady income in the form of fixed rate of return and safety of investment;

2. Preference shares are useful fo rthose investors who want fixed rate of return with comparativelylow risk;

3. It does not affect the control of equity shareholders over the management as preference shareholders don’t have voting rights

4. Payment of fixed rate of dividend to preference shares may enablea company to declare higher rates of dividend for the equity shareholders in good times;

WHAT MAY BE THE DEMERITS OF PREFERNCE SHARES?

It's time to think.

Multiple Choice

Preference Shareholders do not get voting rights

• True

• False

Multiple Choice

The term redeemable is used for

• Preference shareholders

• Public depositors

• Private Individuals

• Equity shareholders

Open Ended

Mention one merit and demerit of Equity shares

Poll

Poll: $1,000 invested in Coca-Cola in 1990 would be worth $14,979 today, including dividends. Rose declined to invest as an equity shareholder back then. Do you think she was right to do so? Being a preference shareholder ensured that she had regular dividend. But was it worth it to lose the extra profit?

• Yes

• No

Multiple Choice

Money obtained by issue of shares is known as

• Debts

• Share Capital

• Loans

• Reserve Funds