What is Shares? | Types of share. | Difference between Equity Share and Preference Share.

Meaning of Share  

Meaning of Shares

Total capital of the company is divided into units of small units. Each such unit in which the capital of the company is divided is called a 'share'. In other words, a share is a unit in which the capital of the company is divided. 

Definition of Shares

According to Indian Companies Act, a share is the share capital of a company and includes stock except, where a distinction between stock and shares is expressed or implied."

For example:

A company has been incorporated (registered) with a capital of ₹ 5,00,000 which is divided into 5,000 units, then the value of each unit will be ₹ 100. 

Types of Shares 

According to the Companies Act, a company can issue only following two types of shares-

(1) Equity Shares or Ordinary Shares

(2) Preference Shares

1. Equity Shares

Equity Shares or Ordinary Shares mean those shares on which dividend is paid from the profit after dividend on preference shares. It is not necessary to give dividend on these shares. Rate of dividend is not fixed on these shares. On liquidation if some amount is left after payment to preference shareholders then equity shareholders are paid. Actually equity shareholders are real owners of the company.

2. Preference Shares

These are special shares of a company. These shares are those part of capital on which shareholders have some special preferences. Dividend is paid to them at a certain percentage. Besides on liquidation of the company preference shareholders are given preference on repayment of capital.

Difference between Equity Shares and Preference Shares