Shares and Stock Market - An Overview

An organization in order to raise money divides its entire capital into small units of equal value. Each unit is called a share.

A share is nothing but an indivisible unit of a company’s capital to be sold among individuals to increase profit of the organization.

Shareholder

An individual owning one or more than one share of an organization is called a shareholder. In simpler words, an individual purchasing one or more than one share from any private or public organization is called a shareholder.

• A shareholder can sell his shares anytime depending on the current value of the share.
• He/she can purchase any new share issued by any other or same organization.
• A shareholder has the right to declared dividend.

Dividend

Why do people invest in shares ?

An organization pays the shareholders for investing in their company’s shares. The income earned by an individual by investing in an organization’s share (private or public) is called as dividend.

What is Retained Earnings ?

The profit earned by an organization is put into use in the following two ways:

• It is paid to the shareholders as dividend.
• The profit earned by the organization is not distributed amongst the shareholders but is retained and reinvested in the organization. This portion of the income is called retained earnings.

What is a Share Certificate ?

When an individual purchases shares from any organization, he/she is issued a certificate as a proof of his investment. Such a certificate issued by an organization to the shareholders is called a share certificate.

Types of Shares

1. Equity Shares

   Equity shares also called as ordinary shares are the shares where the payment of dividend is directly proportional to the profits earned by the organization. Higher the profits earned, higher the dividend, lower the profits, and lower the dividend. In an equity share, dividends are paid at a fluctuating/floating rate.

2. Preference Shares

   Shares which enjoy preference over payment of dividends are called preference shares. Shareholders enjoy fixed rate of dividends in case of preference shares.

3. Founder Shares

   Shares held by the management or founders of the organization are called as founder shares.

4. Bonus Shares

   Bonus shares are often issued to the shareholders when the organization earns surplus profits. The company officials may decide to pay the extra profits to the shareholders either as cash (dividend) or issue a bonus share to them.

   Bonus shares are often issued by organizations to the shareholders free of charge as a gift in proportion to their existing shares with the organization.

How to buy shares ?

• Find a good broker for yourself. Make sure he has good knowledge about the share market and can guide you properly.
• To invest in shares one needs to open a DEMAT Account for online trading. A DEMAT Account is mandatory for sale and purchase of shares anytime and anywhere.
• An individual needs to have his PAN Card, a bank account, other necessary Identity proofs, address proofs and so on.

What is a Stock Market ?

A stock market is a platform for trading of company’s shares at an agreed rate.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.