Equity Share

Equity can be a confusing concept for individuals not involved in finance. Essentially, equity refers to the ownership of or investment in property. Equity is essential to the functioning of the American and global economies. Equity comes in many types, and an understanding of each of these is a good starting point for anyone interested in finance.

A form of collective partnership between an owner/investor and an owner/occupant. The investor takes deductions in the loss of value for his or her share of the ownership. For the occupant, a part of his or her monthly payment is treated as rent. Additionally, the occupant acquires part of the tax write-offs for interest and taxes. Both owners equally divide the profit once the property is sold. Compare to joint ownership.

Equity shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. These share holders do not enjoy preference regarding payment of dividend and repayment of capital.Equity shareholders are paid dividend out of the profits made by a company. Higher the profits, higher will be the dividend and lower the profits, lower will be the dividend.

The Equity share is a common name, some of the types of equity shares are

• Blue Chip Shares

  These are the shares of some of the companies which have been doing extremely well in thepast few years. These are usually well established companies. The word blue-chip shares cameinto existence when IBM Company was doing very well and shares of that company weretrading at higher prices. The companies which come under this umbrella are never fixed as theperformance of some of the companies may suddenly fall down and some of the companieswhich never did well start to do extremely well. Hence it can be said that list of blue-chipcompanies keeps on changing each year. The companies which come under this are marketleaders and have the potential to dictate terms.

• Income Shares

  These are the shares of the companies which have stable operations. The companies have ahigh dividend payout ratio and when the dividends paid are high it implies that the profitssaved for company is less and hence less opportunities of growth.

• Growth shares

  These are the shares of companies which have secured their positions in a particular industry.These shares have less dividend payout ratio and hence high growth potential.

• Cyclical Shares

  There is a definite business cycle that keeps on operating and these are the shares of thatcompany whose performance varies with the stages of the cycle. It means to say that theprices of the shares are affected by the variations in the economy

• Defensive shares

  These are the shares of the company whose performance does not change with the changes inthe economy

• Speculative shares

  These are the shares which are traded in the company which have a lot of speculations.Shares cannot be put into one category strictly because the characteristics of the shares areoverlapping in the sense that the blue-chip shares which are in great demand in the market fallunder blue-chip shares and speculative shares.

• Owned capital

  Equity share capital is owned capital because it is the money of the shareholders who are actually the owners of the company.

• Fixed value or nominal value

  Every share has fixed value or a nominal value. For example, the price of a share is Rs. 10/- which indicates a fixed value or a nominal value.

• Distinctive number

  Every share is given a distinct number just like a roll number for the purpose of identification.

• Attached rights

  A share gives its owner the right to receive dividend, the right to vote, the right to attend meetings, the right to inspect the books of accounts.

• Return on shares

  Every shareholder is entitled to a return on shares which is known as dividend. Dividend depends on the profits made by a company. Higher the profits, higher will be the dividend and vice versa.

• Transfer of shares

  Equity shares are easily transferable, that is if a person buys shares of a particular company and he does not want them, he can sell them to any one, thereby transferring the shares in the name of that person.

• Benefit of right issue

  When a company makes fresh issue of shares, the equity shareholders are given certain rights in the company. The company has to offer the new shares first to the equity shareholders in the proportion to their existing share holding. In case they do not take up the shares offered to them, the same can be issue to others. Thus, equity shareholders get the benefits of the right issue.

• Benefit of Bonus shares

  Joint stock companies which make huge profits, issue bonus shares to their ordinary shareholders out of the accumulated profits. These shares are issued free of cost in proportion to the number of existing equity share holding. In case they do not take up the shares offered to them, the same can be issued to others. Thus, equity shareholders get the benefits of the right issue.

• Irredeemable

  Equity shares are always irredeemable. This means equity capital is not returnable during the life time of a company.

• Capital appreciation

  The nominal or par value of equity shares is fixed but the market value fluctuates. The market value mainly depends upon profitability and prosperity of the company. High rate of dividend is paid with high rate of profit, the shareholders capital is appreciated through an appreciation in the market value of shares. (i.e. higher the rate of dividend, higher the market value of the shares.)