1. Introduction : A company desiring to raise share capital invites the public to invest in the company by issuing various types of shares. There are various types of people in the society having different viewpoints regarding the investment in shares. Some investors desire to get regular income of dividend by investing in shares, while other investors desire safety of their investment. In addition to this, some investors desire to get profit by buying and purchasing of shares from the market depending on the fluctuations of prices. Thus, in order to attract different types of investors and taking into consideration the possible requirement of money, the company issues different types of shares.
2. What is Share?: Share means one part of capital. Company divides its capital into small parts. That part is known as share. A share may also be defined as a unit of measure of a shareholder’s interest in the company.
3. Types of Shares : As per the Companies Act, the company can issue two types of shares as under.
[A] Equity Shares: Equity Share is a common security issued under permanent or owner’s fund capital. Equity shares are the most important source of raising long term capital.
Equity Shares can be caissified as under:
(1) Ordinary Equity Share: In general term the ordinary equity share means which have right to receive dividend after preference share and getting refund of share capital after preference share in case of dissolution of company.
Such types of shareholders are known as true owners or faithful companion of the company. They have right to remain present in the general meeting of the company and have voting rights. The equity shareholders cast vote to select the Board of Directors who control and manage the affairs of the company. They also have benefit to get Right shares and Bonus shares.
At the time of adversity equity shareholders have to suffer loss and get no return or very low return. Thus, they are considered as the primary risk bearers of the company.
(2) Other Equity Share : There are two types included in it, (i) Equity share with voting rights (ii) Equity Share with differential rights as to divided and voting.
(3) Sweat Equity Share : The company issue share to their directors, professional experts, employees with discount or without consideration of cash Ire known as Sweat Equity Share, usually these shares are offered at price lower than that prevailing in the market.
It is given to the employees as reward of their work. They gets extra income as dividend on share along with salary The feeling of a ownership in the company motivates them to perform well.
[B] Preference Share : The types of shares which qualifies a priority in getting dividend out of the profits of the company and also priority to be refunded the capital at the time of dissolution of the company are acknowledged as the preference share.
The rate of dividend paid to preference shareholder&s fixed and the risk involved in it is relatively less. Thus, the investors who wants stable fix income and safety of capital purchase such type of shares. Preference shares can be classified in two categories.
(1) Redeemed before 20 years : As per the companies act 2013, such type of preference shares issued by a company must be redeemed within a period 20 years from the date of its issue.
(2) Redeemed after 20 years : As per the companies act 2013, such type of preference shares redeemed by the company after 20 years on a fixed period of time.
4. Conclusion: Comapny issues various shares as per its requirement of long term and medium term capital.