A company is a separate entity. A company’s capital is usually raised through issuing shares. It means dividing the company’s capital . Shareholders become the owners of the company. Shares are basically of two types-
- Equity Shares– They are known as the owners of the company , they have the voting rights in the board of a company. They have the maximum risk with no fixed return.
- Preferential shares –These are known as the preferred stock, these are paid dividends before equity share holders , they have less risk with no voting rights.
These shares are further divided into various categories. Lets look at them one by one.
- Blue chip shares -The shares of the big companies are called blue chip shares. In addition, these shares have no fixed returns as the performance of these companies are uncertain.
- Income shares – The companies with relative stable income come under this category, these companies have stable performance.
- Growth shares – the companies giving less dividends in ratio of their profit falls under this category. Thus these companies have high growth potential.
- Cyclic shares- the companies having different or varied profit in different business cycle is a part of this category.
- Defensive shares – some company shares do not vary with the economy these type are a part of this category.
- Speculation shares – the type of shares which do not fall in any of the above category is a part of this category, these may overlap blue chip shares.
- Cumulative and non- cumulative shares – Suppose a company is not earning any profit for 3 years. But it starts earning profit in the 4th year then the person with cumulative shares will have the profit for all the 4 years. However the other with non-cumulative share will only get profit for the 4th year
- Redeemable and non- redeemable shares. – Non – redeemable shares can only be matured at the closing down of the company. But redeemable shares can be matured during anytime or before the company closes down
- Convertible and non- convertible shares – The shares which can be converted into other financial instruments such as debentures etc are known as convertible and others which can’t be converted at the time of matured at the time of maturity are known as non – convertible shares
- Participating and non – participating shares – The surplus left with the company after paying off the debentures, preference share and equity share holders is then distributed between the equity and participating share holders.