An organization, in order for it to raise money, divides its entire capital into smaller units of equal value. And each of these units is called a share. A share is an indivisible unit of a company’s capital to be sold among individuals to increase profit in the organization.
A person who owns one or more shares of an organization can be called a shareholder. Simply put, an individual who buys one or more shares of any private organization is called a shareholder.
A shareholder can sell his shares anytime depending on the current value of the share. He or she can purchase any new share issued by any other or same organization. A shareholder also has the right to any declared dividend.
An organization pays the shareholders for investing in their company’s shares. The income earned by the person by investing in an organization or business’s share, private or public, is referred to as dividend.
The profit that an organization earns is put into use in multiple ways.
One, it can be paid to the shareholders as dividend. Or this profit can be held and retained by the organization to be reinvested in the business. This portion of their income is generally referred to as retained earnings.
What is a Share Certificate?
When a person buys shares from any organization, he or she is issued a certificate as a proof of his investment. This certificate is issued by the company to the shareholder is called a share certificate.
Types of Shares
Equity shares are called common share. These are the type where the payment of dividend is directly proportionate to the profits that are earned by the company. Higher profits mean higher dividends. Lower profits mean lower dividends. In an equity share, dividends are paid at a fluctuating or floating rate.
Preferred shares are those that earn dividends at a fixed rate. They are also generally prioritized over common equity shares, especially in the event that the business goes bankrupt.
Shares that are held by the management or founders of the company are called the founder shares.
Bonus shares are typically 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 in the form of dividends or issue a bonus share to them.
Bonus shares are usually issued by companies to the shareholders free of charge as a gift in proportion to their existing shares with the business.
How to Buy Shares?
First, you have to find a good broker for yourself. Make sure that this broker has good knowledge about the workings of the stock market and can guide you properly.
To invest in shares, you also have to open a trading account that you can use to buy and sell such shares anytime and anywhere.