MEANING OF SHARES & SHARE CAPITAL

A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares.
Shares are the marketable instruments issued by the companies in order to raise the required capital. These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm.

TYPES OF SHARES
The shares which are issued by companies are of two types:
Equity Shares Preference Shares

EQUITY SHARES

Equity Shares are issued and are traded everyday in the stock market. Equity share holders only get dividend after preference shareholders & debenture holders. The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company. The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting. Equity shareholders have the right to vote on any resolution placed before the company.

TYPES OF EQUITY SHARES

Blue Chip Shares:

These are the shares of companies which are well established and reputed in all fields. These shares normally pay dividends, and have a track record of performance and earnings. Blue chip companies also have no large amounts of liabilities. Blue chip shares are usually the cream of the crop, and are sought after. These types of shares are generally considered stable and safe as an investment.

The Blue Chip companies include Microsoft, Coca- Cola, Reliance, ONGC, NTPC, SBI, ICICI, Tata Steels, Wipro, and a few others.

TYPES OF EQUITY SHARES

Penny stocks:
These are another shares classification, and these shares are low in price and high in risks. Penny shares are not traded on the regular stock markets and exchanges, and are instead traded on over the counter markets instead. Penny shares offer a significant opportunity for reward if you choose wisely, but there is a high risk level involved because many penny shares come from companies without an extensive history available.

TYPES OF EQUITY SHARES

Income Shares:
These companies have a stable share value and always pay high dividends. Since they have high dividend payout ratio, the profits of the company saved are less and so their growth opportunities are very less.

Growth Shares:
These are shares of companies which are on top in their industry like Wipro in Computers, Tatas in steel, Bajaj in automobiles etc. The shares here have less dividend payout and so their growth rate is high.

TYPES OF EQUITY SHARES

Cyclical Shares: Some companys performance keeps fluctuating like a business cycle meaning the share prices are affected with any variations in the economy. Sugar and fertiliser are two such industries.
Defensive Shares: The shares of these companies are not affected by the economical changes.

TYPES OF EQUITY SHARES

Speculative Shares:
The shares here are traded on speculations. These shares are high risk in nature but also give very high returns in short terms. The scrips fall sharply suddenly so investors should always keep an eye on it always.

Value shares:

are shares which investors believe have been undervalued, and these shares are believed to be worth more than the current market value.

ADVANTAGES
High Return Easily Transferable. These can be easily liquidated. Right to vote Right to choose the board of directors. Equity share holders have the right to oppose any of the decisions taken by the board of directors. ( for e.g. This is what happened when Mr. Ramalinga raju tried to buy Maytas company)

DISADVANTAGES
High Risk In worst cases less privilege given to equity share holders.

PREFRENCE SHARE
These are other type of shares. The preference shares are market instrument issued by the companies to raise the capital. Preference shares have the characteristics of both equity shares and debentures. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders.

TYPES OF PREFERENCE SHARES

Preference shares are divided into:
Cumulative & Non cumulative shares Redeemable & Non-redeemable Convertible & Non-convertible shares Participating and non-participating

ADVANTAGES
These yield fixed rate of returns Its a hybrid instrument having some of the characteristics of debentures and equity shares.

DISADVANTAGES
They do not provide the investor with any of the voting rights. If the company gets huge profits then they wont get any extra bonus.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.

TYPES OF DEBENTURE

Non Convertible Debentures (NCD): These instruments retain the debt character and can not be converted into equity shares. Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company. Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.

On basis of Security, debentures are classified into:

Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors. Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.

ADVANTAGES
1. Control of company is not surrendered to debenture holders because they do not have any voting rights. 2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased. 3. Debenture can be redeemed when company has surplus funds.

DISADVANTAGES
1. Cost of raising capital through debentures is high of high stamps duty. 2. Common people cannot buy debenture as they are of high denominations. 3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures.