What Is a Share?

 A share is a unit of ownership interest in a corporation or financial asset. It entitles the shareholder to an equal distribution in any profits, if they are declared in the form of dividends.

A corporation divides ownership of itself into shares, which are offered for sale to raise share capital, termed as issuing shares.

Thus, a share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value: the total capital of a company is divided into a number of shares.

There are mainly two types of shares:

1. Ordinary shares/common stock

They entitle a shareholder to the earnings of the company as and when they occur. Also gives the shareholder the voting rights at the company's annual general meetings and other official meetings.

2. Preference shares/preferred stock

They do not carry any voting rights. Dividend payment is fixed and the holders of the preference shares are paid dividend first before any dividends is issued to other shareholders. In the event of a company bankruptcy, owners of preference shares will be the first to get their money back after the company pays back its debt.

Common types of preference shares:

• Redeemable and irredeemable preference shares

Redeemable preference shares can be redeemed or repaid by a company at a specific date at an agreed price.

Irredeemable preference shares cannot be redeemed during the lifetime of a company. They can only be repaid during liquidation of a company.

• Convertible and Non-convertible preference shares

Convertible preference shares possess an option or right where they can be converted to ordinary shares at agreed terms and conditions.

Non-convertible preference shares do not have the same option as the convertible preference shares but have similar characteristics to normal preference shares.

• Cumulative and Non-cumulative preference shares

Cumulative preference shares are, if dividend is not paid, carried forward to subsequent years and accumulate until the amount is paid in full.

Non-cumulative preference shares have right to fixed dividend for the current year only and cannot be paid from future profits if a company does not pay dividend in a particular year.

• Participating and Non-participating preference shares

Participating preference shares have benefit of participating in surplus profits of a company after paying the equity shareholders in addition to fixed dividend payment.

Non-participating preference shares do not have the right to participate in surplus profits of the company.