Types of Shares: Meaning of Shares, Equity Share, Preferential Share

The certificate bears the name of the shareholder and the number and the class of shares owned by the shareholder. It is serially numbered, stamped by the common seal of the company, and signed by the authorized signatory. The fourth step is to receive applications for shares from the public.

The stock Pages host meaningful data about the company’s business, financial performance, analyst ratings, stock price forecast, and more. You can also check out the shareholding pattern of the company and compare the stock with its peers to get cues on its performance. The next step of the issuing company is to select a Merchant Banker to manage its issue.

Issue of Prospectus

1. This minimum subscription cannot be less than 90% of the issued capital and is usually set by the Board of Directors.
2. This is the minimum amount that a company is required to collect when issuing shares to the public.
3. After the publication of a prospectus, a prospective shareholder is required to collect a copy of the prospectus which contains a printed application form.
4. So, they receive the dividend even before the common shareholders and have an upper hand.
5. They also have to deposit the amount against shares they are willing to purchase.
6. For example, H Ltd. is registered with a capital of Rs. 8, 00,000 divided into shares of Rs. 10 each.

Issue of shares is the process by which a company allots its shares to investors willing to invest. Such an investor is called a shareholder and can be an individual, corporate entity, LLP, private limited company or public limited company, and even an institution. Depending on the type, a share can offer the holder part ownership of the company along with voting rights. In addition, this process is based on demand, subscription levels, and regulatory guidelines. These types of shares are a subcategory of common shares, wherein management divides the shareholders into multiple classes, all these classes are granted different voting rights. Generally, the Issue of Shares is of two kinds – common shares and preference shares.

Allotment of Shares

Equity shares are issues of shares that are purely meant for ownership. It is entirely opposite to preference shares and does not provide any preference rights to shareholders during the distribution of dividends. Among the many types of stocks, a company issues this variant to its existing shareholders. In a stricter sense, companies proffer existing stakeholders the right to purchase such shares before it is open for trade to external investors. A share in the share capital of the company, including stock, is the definition of the term ‘Share’. In other words, a share is a measure of the interest in the company’s assets held by a shareholder.

3rd- The shares will be allocated to the concerned investor along with a confirmation letter. The shares are issued by the companies in order to raise money from investors who tend to invest their money. The Company uses this money for the development and growth of their businesses. Bonus issue refer to offering of free shares by company to current shareholders in addition to shares held by them. These shares are issued in proportion to fully-paid up equity shares held by shareholders. Bonus shares are issued free of any cost and are made out of free reserves or securities premium account of company.

This means that a private company may have other kinds of shares such as deferred shares or founder shares in addition to Preference and Equity Shares. Therefore, this process makes up for an authentic way of trading shares between investors and enterprises. They also have to deposit the amount against shares they are willing to purchase. The money has to be deposited to any scheduled bank along with the application. The prospectus has all the necessary details of that share issuing authority along with details pertaining to how they will collect money from investors. It should be noted that an organization is allowed to offer shares to be purchased by others through the Companies Act 2013 and has to follow the rules predefined under the act.

For example, H Ltd. is registered with a capital of Rs. 8, 00,000 divided into shares of Rs. 10 each. Here the authorized, nominal or registered capital of the company is Rs. 8, 00,000. Meaning that the shareholders are not able to partake in any executive decision regarding that organization. These shares grant fewer rights than common shares, wherein dividends are paid only after a certain period of time and various other constraints. The main reason for issuing new shares by the company is to raise money to finance the business.

Issued Share Capital

A share or the proportion of interest of a shareholder is equal to the proportion of the amount paid to the total capital payable to the company. Let us look at the various types of shares a company can issue – equity shares and preferential shares. The allotment of shares traces back to the evolution of modern corporate structures and the need for sustainable means of raising capital. In the early days of capitalism, as commerce expanded, businesses required substantial funds to fund operations, embark on new ventures, and withstand economic challenges. Corporations began offering ownership shares to the public to fulfill this need in exchange for investments. This practice was a departure from traditional private partnerships and sole proprietorships, as it allowed a diverse range of investors to contribute financially to the growth of enterprises.

After the publication of a prospectus, a prospective shareholder is required to collect a copy of the prospectus which contains a printed application form. Issue of bonus shares by a company to its existing shareholders is another example of this kind. For example, a company purchased some assets from the vendor and instead of making payment to the vendor in cash, the company may allot shares in the discharge of purchase consideration. The issue of shares to vendors is known as the issue of shares for consideration other than cash. A company cannot issue shares more than the nominal or authorized capital.

Further, a shareholder must have certain contractual and other rights as per the provisions of the Companies Act, 2013. The financial industry will keenly observe the outcome of this step as it signifies the next phase of the IPO journey. Hence, successful allotment and the subsequent listing could indicate a positive market response to SBFC Finance’s public debut.

Let us understand the concept of share allocation with the help of an example. Investortonight a wide range of articles, tutorials, and videos on these topics, including entrepreneurship, personal finance, leadership, strategy, and investing.

These shares are transferable and are traded actively by investors in the stock market. An equity shareholder is entitled to voting rights on various issues of the company. They also have the right to receive dividends should the company decide to declare any. This is the minimum amount that a company is required to collect when issuing shares to the public. This minimum subscription is set by the Board types of issue of shares of Directors and cannot be below 90% of the issued capital. If a company fails to get 90% of the issued capital, the offer will fail, and it will have to return the application money received so far within the prescribed time.

This procedure involves issuing new shares and facilitating capital infusion into the company. Hence, it governs the distribution of ownership stakes and confers rights and responsibilities upon the recipients, who become shareholders. Allotment of shares refers to the process by which a company issues and allocates its authorized shares of stock to individuals or entities, known as shareholders or stockholders.