Equity Shares and their Shared Privileges

Equity share refers to the fraction of a company’s assets which gives its shareholders a part of the entrepreneurial profits, risks and ownership rights of the business. These shares, also called “stocks”, give investors the right to vote, share income and claim to a company’s assets. 

Majority of companies start working on equity finance as the source of capital provided by pioneer owners. As growth continues to take place, the need for greater capital arises as well. This signals a company’s search for investors to upload more capital and acquire equity shares from them.

Why Investors Prefer to Invest in this Shares

Permanent source of funds


Equity shares are a company’s permanent capital and cannot be redeemed from a shareholder at any time. Law mandates no company to purchase its own shares. 

Bestows ownership rights to shareholders


Equity shareholders are the actual owners of a company. This means that they also share in the growth and success of the corporation. 

Provides voting rights to shareholders


Since stockholders share ownership rights, they also enjoy voting rights during the company’s election of the Board of Directors to participate in building business strategies. 

Grants limited liability according to the amount of equity share


Shareholders’ liability is limited to the value of the shares they own within a company. This is because a company is an individual entity, separate from its shareholders. Once a stockholder has fully paid the price of share, further losses will not be his liability even at the time of liquidation. 

Subject to liquidation with all shareholders


A company’s Board of Directors annually present company’s financial report attended by everyone who owns a stock in the company.

Different types

Common Stock


This most frequently traded and owned stock provides shareholders all aforementioned equity share characteristics. It means that common stock owner shares with the company’s profit, ownership, voting rights and liquidation. 

Preferred stock


This stock entitles shareholders to a fixed income stream, considerably more predictable and reliable than the common shares provide. Shareholders receive an annual dividend equal to an original issue price multiplied by a coupon rate provided in the preferred stock. 

Shareholders of preferred stocks are above common stockholders in priority. For example, if the board suspends preferred dividend payments, common stockholders’ dividend are suspended as well. 

Although, preferred stockholders do not have voting rights as the common owners. They cannot influence the company’s strategic direction.                       

Convertible preferred stock


This type of equity shares establishes a subdivision of preferred stock. At a so-called conversation ratio, these primarily preferred stocks can be exchanged for common shares.


Source link   Presented by GMOTrading

Understanding Crypto Market Cap

With 1855 Cryptocurrencies available and a total market cap of $ 212 Billion, the cryptocurrency market may be worth exploring for investors...

Futures Trading for Beginners

Futures trading can be difficult if investment strategies are not defined and applied properly. Some point to the fact that futures market is also referred...

Basics of the Technical Analysis

Technical analysis is a method used to forecast future financial price movements based on a careful study of past price movements. The method...


All You Need to Know about FTSE Futures

The FTSE is an acronym for the Financial Times and Stock Exchange index that represents the hundreds of top companies on the London Stock Exchange...

What You Should Know about FTSE 250

The FTSE 250 is an acronym for the Financial Times and Stock Exchange 250 index which represents the top FTSE 250 companies listed on the London...

What should you know about Dax 30?

The Deutscher AktienindeX or the DAX 30 represents 30 of the most liquid and large, blue chip companies in Germany. These companies are also listed...


Test to the strength of major world indices

The role of major world indices is to serve as a gauge in their countries respective stock market using relative weighted average. They have been significant...

Boosting Portfolios and Terminating Risks

In today's present world condition, we can confidently say to ourselves that we are living in times of uncertainties. In the world of financial market, uncertainties...

Investing with Safety in Mind

With low-risk investment options, you have to make a compromise. Investing in them will greatly minimize any financial risk but it will also lessen your rate of return...

  


Share: