What Is the Meaning Of Share?

A share represents a unit of equity ownership in a company.

Shareholders are entitled to any profits that the company may
earn in the form of dividends. They are also the bearers of any
losses that the company may face.

In simple words, if you are a shareholder of a company, you hold

a percentage of ownership of the issuing company in proportion to
the shares you have bought.

In other words:-
A share is a single unit of ownership in a company or financial
asset.
It is essentially an exchangeable piece of value of a company
which can fluctuate up or down, depending on several different
market factors.
Companies divide capital into shares as a means of raising
capital. Shares are also known as stocks.
There are two main types of shares: common shares, which
British people call ordinary shares, and preference shares.
Ordinary shareholders have voting rights and receive dividends
according to profit levels. Whereas preferred shareholders don’t
usually have voting rights but have priority in the payment of
dividends.
The value of a share that a company issues depends on its
face value –
The capital of a company divided by the total number of shares. A
firm’s authorized capital refers to the maximum amount in shares
it is allowed to sell.
They vary based on their profitability, voting rights and treatment
in the event of liquidation. How is a share valued?
The value of a share depends on several key market principles.
Put simply, a share’s value is what people are willing to pay for it
if is on sale. Shares are not sold at any given time though – the
transaction of shares strongly depends on the liquidity of the
market.
Investors buy shares because they predict the value of the share
will go up, and for the streaming long term dividend payments.
Companies try to please investors by allowing shareholders to
vote on who directs the company and other major decisions.
Stockholders are, after all, the owners of the company.
When the press writes favorably about a particular stock, it might
suddenly become popular. Many analysts make optimistic
predictions. Often, they are startup companies. We call these
types of shares glamour stocks. However, if their glamour fades,
their prices can crash.
Market sentiment – a major factor driving share values
When future profits are expected to rise, the price of shares rises
too. Experts say this market sentiment is often more powerful
than the straightforward publication of profit data.
As illogical as it may sound, if an analyst or expert says that a
company will double its profits, that simple prediction will push up
the value of its shares. Obviously, the analyst needs to be well
recognized.
When the profits are published, the price of that company’s
shares will probably fall if the prediction was wrong.
In order to appreciate how markets behave, especially individual
shares, it is important to understand the dynamics of market
sentiment.
In the past, stock certificates were issued as evidence of
ownership of a share. However, nowadays systems such as
CREST record a shareholder’s ownership electronically.
Shares are sold, listed and traded on stock exchanges. The
largest stock exchange markets in the United States are the New
York Stock Exchange (NYSE), followed by NASDAQ, in Europe
the London Stock Exchange is the biggest.
Unlisted share are traded over the counter. The whole
environment of trading in shares, including those bought and sold
in stock exchanges and over the counter, is known as the stock
market.

Shares can be further categorized into two types.

These are:

 Equity shares
 Preference shares

1. Equity Shares Meaning

These are also known as ordinary shares and comprise the bulk
of the shares being issued by a particular company. Equity shares
are transferable and are traded actively by investors in stock
markets. As an equity shareholder, you are not only entitled to
voting rights on company issues but also have the right to receive
dividends.
These dividends, however, are not fixed. Equity shareholders also
partake in any losses faced by the company, limited to the
amount they had invested. Equity shares can be further divided
based on:

 Share capital
 Definition
 Returns

Classification of Equity Shares based on Share Capital.

Here is a look at the classification of equity shares based on

share capital:

 Authorised Share Capital: Every company, in its

Memorandum of Associations, requires to prescribe the
maximum amount of capital that can be raised by issuing
equity shares. The limit, however, can be increased by
paying additional fees and after the completion of certain
legal procedures.
 Issued Share Capital: This implies the specified portion of
the company’s capital, which has been offered to investors
through the issuance of equity shares. For example, if the
nominal value of one stock is Rs 200 and the company
issues 20,000 equity shares, the issued share capital will be
Rs 40 lakh.
 Subscribed Share Capital: The portion of the issued
capital, which has been subscribed by investors is known as
subscribed share capital.
 Paid-Up Capital: The amount of money paid by investors for
holding the company’s stocks is known as paid-up capital.
As investors pay the entire amount at once, subscribed and
paid-up capital refer to the same amount.
Classification of Equity Shares based on Definition:-

Here is a look at the equity share classification based on the

definition:

 Bonus Shares: Bonus share definition implies those

additional stocks which are issued to existing shareholders
free-of-cost, or as a bonus.
 Rights Shares: Right shares meaning is that a company
can provide new shares to its existing shareholders - at a
particular price and within a specific period - before being
offered for trading in stock markets.
 Sweat Equity Shares: If as an employee of the company,
you have made a significant contribution, the company can
reward you by issuing sweat equity shares.
 Voting And Non-Voting Shares: Although the majority of
shares carry voting rights, the company can make an
exception and issue differential or zero voting rights to
shareholders.

Classification of Equity Shares based on Returns

Based on returns, here is a look at the types of shares:

 Dividend Shares: A company can choose to pay dividends

in the form of issuing new shares, on a pro-rata basis.
 Growth Shares: These types of shares are associated with
companies that have extraordinary growth rates. While such
companies might not provide dividends, the value of their
stocks increases rapidly, thereby providing capital gains to
investors.
 Value Shares: These types of shares are traded in stock
markets at prices lower than their intrinsic value. Investors
can expect the prices to appreciate over some time, thus
providing them with a better share price.
 Features of Equity Shares
 Permanent in nature

 These shares issued by the company are permanent in nature

and non-redeemable. You cannot return these shares until the
company decides to close its business.

Transferable and dividend pay-out 

Equity shares are transferable i.e. you can transfer the ownership
of these securities from you to another investor or vice versa.
Many companies offer dividend payout to their shareholders. This
dividend amount depends on the profit made by the company and
the availability of funds with the company. So, whenever a
company fails to make a profit it may decide to hold on to dividend
pay-out.

Potentially high returns

Equity shares are volatile and possess high-risk factors however

the returns offered are huge. So, if you have a greater risk
appetite you can create a huge corpus with high returns from
equity shares.

 Benefits of Investing in Equity Shares

High risk, high reward

 As mentioned earlier equity shares are accompanied by high-risk

factors. But higher the risk greater the returns offered by equity
share investment. When the company makes profits, investors
benefit through dividends offered by the company.

 
Easy and efficient

 A investor can invest in the equity market with the help of a

stockbroker or financial planner. Investors can invest in equities of
any company of their choice using a Demat account. A Demat
account enables easy and efficient trading transactions.

Diversity

 Investors can create a diverse investment portfolio by investing

across equities of the company from various sectors or industries.
Diversification offers you exposure to equities of various sectors
and creates a balanced portfolio that offers stable returns in the
future.

 What are the Risks Associated with this Investment?

You can’t always expect positive returns from investment in equity

shares. Though you can see historically equity shares have
offered greater returns to the investors as many companies have
shown greater growth in past years with increased revenue and
demand for products. Even though there are chances you can
lose all your money invested in the equity market. Even if it is not
all your money you may face major losses when the company
fails to make profits or overall negative market sentiments. These
are the risks associated with an investment in equity shares which
you have to accept when you began your investment journey.
Learn more details of the risks associated with the equity
market below.

 
Capital Loss

 The equity share price is evaluated by the demand and supply of

the shares. If investors examine the company to find that it will
grow in the future, they start purchasing more shares. When the
shares are bought on a large scale the price of the share also
increases. On contrary to this scenario if the investors predict the
poor performance of the company, they may decide to sell all the
shares. This means the demand for the shares decreases which
may cause a drop in the price of shares. So, if you have invested
in such shares you may incur capital loss due to a drop in their
demand.

Volatility

 For many reasons you will observe fluctuation in the share price
over some time, this is referred to as volatility. Suppose the equity
share price fluctuates between 100 and 200 in a single day the
share is said to be more volatile than the share whose price
fluctuates between 140 and 160 in a single day. As the market
price of a share is evaluated basis many factors like market
sentiment, social, political, or other reasons the equity share price
can become volatile in no time. You can benefit from the volatile
share when you purchase the shares at their lowest price and
earn profits even when there is a slight increase in share price.
You can also sell stocks when the share price increases to earn
more returns.
 2. Preference Shares
As the name suggests, preference shares give its holder
preferential treatment when it comes to collecting dividends and
revenue share. Yes, a preference shareholder gets preference
over common equity shareholder when a company declares
dividends. Even when a company declares bankruptcy,
preference shareholders are paid before common equity
shareholders.

Despite such huge benefits, preference shares aren’t as popular

as common equity shares. And a major reason for this is that
majority of investors might not even know what are preference
shares!

 What are Preference Shares?

Preference shares are a special type of equity shares. A
preference shareholder gets the first claim on a company’s
profits and dividends after creditors.  Like debt instruments,
preference shares also provide fixed income  in the form of
preference dividends. While the dividend income is assured,
it is important to note that preference shareholders do not
get voting rights. When you are investing in preference
shares, keep in mind that they are not risk-free like bonds.
Like common equity shares, even preference shares
experience fluctuations and the principal amount is not
secured.

 Why Does a Company Issue Preference Shares?

There are three crucial reasons why companies issue

preference shares:

To Keep the Debt to Equity Ratio in Check: 

Companies always try their best to avoid excess debt on
their balance sheets. This is because both analysts and
investors monitor a company’s Debt to Equity ratio. Too
much debt on a  balance sheet can lead to poor credit rating
which in turn acts as a big red flag for equity shareholders.
To avoid all this negativity, companies prefer issuing
preference shares instead of adding fresh debt. And the best
way to raise fresh capital without affecting the debt to equity
ratio is by issuing preference shares.

To Retain Voting Rights:

Another reason why companies prefer preference shares

over equity shares is voting rights. When a company issues
equity shares, each shareholder gets voting rights and a say
in management decisions. But the best thing about
preference shares is that preference shareholders do not get
any voting rights.

To Avoid Sharing Profits:

When you buy equity shares of a company, there is no cap

on the dividend income that you can earn. If the company
performs exceptionally well, then you will earn more
dividends. But that’s not the case with preference
shareholders. If the dividend rate for preference shareholder
is fixed at 10%, then irrespective of the profits earned, their
share will remain fixed at 10%. It is not compulsory for a
company to share its entire profits with preference
shareholders like in the case of equity shares.
  What are the Types of Preference Shares?

Types of Preference Shares Based on Dividends 

1. Cumulative Preference Shares

This is the most common type of preference shares.

Cumulative preference shares have an added advantage
over ordinary preference shares as they have the right to
earn dividends even when the company does not make any
profit. Unpaid dividends keep on accumulating and are
carried forward as arrears.

2. Non-Cumulative Preference Shares

A non-cumulative preference share does not accumulate

unpaid dividends. In case the company does not pay
dividends for a few years, then the amount overdue cannot
be claimed in subsequent years.

Types of Preference Shares Based on Redeemability 

1. Redeemable Preference Shares

In case of redeemable preference shares, the issuing

company can purchase the preference shares back from the
holder before maturity. These are also known as callable
preference shares.

2. Irredeemable Preference Shares

These preference shares can only be redeemed if the

company shuts its operations or liquidates itself.
Types of Preference Shares Based on Participation

1. Participating Preference Shares

Usually dividends are paid out at a fixed rate. But if equity

shareholders get a higher dividend, then
participating preference shareholders can also get a chance
to earn higher dividends.  This is usually done when the
company earns huge profits in a particular year.

2. Non-Participating Preference Shares

In non-participating preference shares, the rate of dividend

payout is fixed. So even if the company earns huge profits,
the preference shareholder will be paid fixed dividends only.

Types of Preference Shares Based on Convertibility

1. Convertible Preference Shares

Here shareholders are allowed to convert their preference

shares into common equity shares. This can be done after a
certain time period and at a certain conversion ratio. For
example, if a preference share has a conversion ratio of 2:1,
then you will get two equity shares in exchange for one
preference share.

2. Non-Convertible Preference Shares

These preference shareholders do not get the right to

convert their preference shares into equity shares.
 Advantages of Preference Shares

 Advantages of Preference Shares to Investors

If you hold preference shares of a company, then you are

entitled to earn fixed dividends as per pre-defined rates.

Preference shares provide higher rate of returns than bonds.

Preference shares have lower risk than equity shares and

are suitable for medium risk investors.

If the company goes bankrupt, preference shareholders are

paid before equity shareholders.

As per the Income Tax Act 1961, dividends earned from

preference shares are tax free up to Rs 10 lakh.

 Advantages of Preference Shares to Issuing Company

The cost of raising capital from preference shares is less

than equity shares.

The company is not bound to pay dividend if its profits in a

particular year are insufficient. Except for cumulative
preference shares.

Preference shareholders do not get any voting rights. Hence

it does not lead to dilution of management’s control on a
company.
 Disadvantages of Preference Shares

Disadvantages of Preference Shares to Investors

Preference shareholders do not get voting rights. Hence,

they cannot raise issues to the management or control the
company’s decisions.

Preference shareholders are only paid fixed dividends.

Hence, they do not enjoy the excess profits of the company.
The only exception is participating preference shareholders.

Preference shares cannot be easily bought and sold

as equity shares.

Dividend income of more than Rs 10 lakhs is taxed at 10%.

Disadvantages of Preference Shares to Issuing

Company

Paying yearly dividend can be a financial burden to the

company. Unpaid accumulated dividends only add to a
company’s liabilities.

Unlike equity capital, a company cannot use preference

share capital perpetually.  It has to be repaid on maturity.

Preference shares are to be redeemed compulsorily within

20 years. Hence the company would require huge cash for
this purpose.

The rate of dividend paid to preference shareholders is

generally higher than common equity shareholders. This is
done to attract conservative retail investors.
Long-term and Short-term sources of Finance
Sources of Finance are the means used for raising funds by
business for carrying out their activities. Every business
always need some amount of money for ensuring their
continuity. They acquire these funds using different sources
of funds available in market. Business chooses a particular
source of finance according to their needs and capacity.

Sources of funds are classified on various bases such as on

time-period, control, source of generation and ownership. On
time-period basis these sources are further classified into
long term and short term source of finance.

Short-term sources of finance are those which are used for

raising funds for short period of time that is less than one
year. Money raised through short term source is required to
be paid back within one year. Long-term sources of finance
are those which help in getting funds for longer period that is
more than one year. Funds raised through these can be paid
back over many years.

Short-Term Sources of Finance

Short-term sources of funds: Money acquired must be paid
back within one year. These sources are used for fulfilling
short-term funds requirements.

Various types of short-term sources of funds are as follows:-

 Commercial Paper

Commercial paper is an unsecured promissory note issued

by high creditworthy companies for raising short-term funds.
The maturity period of this source ranges from 91 to 180
days. Commercial papers are issued by companies to
banks, insurance companies, or business funds at discount
on face value and are redeemed at their face value on
maturity.

 Trade Credit

It means credit provided to the business by the supplier of

raw materials or goods for the short term. Trade credit helps
businesses in continuing their operations without interruption
as it helps them in getting supplies without any immediate
payment. Businesses are not required to pay any interest
amount on trade credit.

 Bank Overdraft

Bank overdraft is a credit facility extended by the bank to

their account holders for a shorter period. Under this facility,
customers can overdraw the amount from their account up to
a certain limit set by the bank. Customers need to pay
interest over the overdrawn amount to the bank.

 Bill Of Exchange

Bill of exchange is a financial instrument which is drawn by

the creditor upon his debtor. It is a written negotiable
instrument which contains an unconditional order for paying
the mentioned amount to the holder of the instrument. This
instrument is either payable on-demand or on the maturity of
a particular time period.

 Bank Loan

It means borrowing from the bank at a specific rate of

interest for a particular period of time. Bank grants loan to
borrower against some sort of security which they need to
deposit at the time of taking the loan. Customers need to pay
 interest regularly to bank on the sanctioned amount. A loan
is repaid to the bank either in lump sum amount or in
installment as may be decided at the time of entering the
contract.

 Certificates Of Deposit

It is an unsecured negotiable instrument issued by

commercial banks or financial institutions to investors.
Certificate of deposit is issued to depositors against the
amount deposited by them for a fixed maturity period. The
maturity period of these instruments is decided in
accordance with the needs of depositors and ranges from 90
to 365 days.

Long-term sources of fund: 

Fund raised through these instruments can be paid back over

many years. It enables in fulfilling money requirements needed for
longer time period.

Various types of long-term sources of fund are as described

below:-

 Equity Shares

It is the capital market instrument issued by companies for

acquiring funds for a long period of time. These shares
represent ownership capital in the business. Equity
shareholders are real owners of the business and have full
voting rights. They have full control over the functioning of
the company and also elect directors.

 Preference Shares

Companies can issue another type of shares for raising long-

term funds known as preference shares. These shares
carriers some preferential rights over ordinary or equity
shares. Preferential shareholders are eligible to get a fixed
rate of dividend on their shareholdings and that too before
paying any dividend to equity shareholders. In addition to
this, these shareholders are paid back their capital amount
before the equity shareholders.

 Debentures

A debenture is a debt instrument issued by the company for

raising long-term funds. It represents debt capital and
holders of these instruments are creditors of company who
possess no voting rights. On debentures, fixed rate of
interest is paid irrelevant of whether profit earned or not by
the company.

 Retained Earnings

It means reinvesting the profit earned by the company back

into its activities for expansion and growth. Companies
instead of disturbing all of their earnings among
shareholders, retain some part of it for investing it back into
their operations. This is also termed as ploughing back of
profits.

 Term Loans

It refers to long term loans taken by business from

commercial banks or other financial institutions. Lending
institutions require some sort of security for approving the
loan amount. Borrowers need to pay a fixed rate of interest
regularly to the lending company and full borrowed amount
before the period of maturity.
Case Study-1
#1 Hindustan Unilever Ltd

With over 85 years of heritage in India, Hindustan Unilever

Limited (HUL) is India's largest fast-moving consumer goods
company. On any given day, nine out of ten Indian households
use its products.

Since the very early years, HUL has vigorously responded to

Indian opinions and aspirations.

Their USP? Staying relevant. The company has always been

slightly ahead of their times, and well ahead of their competition.

On 1st November, Hindustan Vanaspati Mfg. Co. Pvt. Ltd.,

William Gossage & Sons (India) Pvt. Ltd. and Joseph Crosfield &
Sons Unilever Ltd. were amalgamated with LBIL and the name
was changed to Hindustan Lever Ltd. From 23rd october
onwards activities of subsidiary Co. were taken over by its holding
Co. On 17th November Unilever Ltd. Offered to the public
557,000 No. of equity shares of Rs.10 each. Those who
invested in the company's IPO have been richly rewarded. Since
its listing in 1956, HUL has announced bonus issues 4 times as
well as a stock split from Rs 10 to Rs 1.

Currently, the stock trades at levels close to Rs 2,300 and

continues to be a part of all the major indices of India.
In recent years, the company has been embroiled in a few
controversies as well.

In 2001 a thermometer factory in Kodaikanal run by Hindustan

Unilever was accused of dumping glass contaminated
with mercury in municipal dumps. After protest by activists, it was
shut down. Unilever admitted before court to being guilty in the
case in 2010.

In 2007, the company had to cease advertisements of its skin-

lightening cream- Fair and Lovely. The company was widely
criticised for perpetuating racism and lowering the self-esteem of
women and girls throughout India who were misled by HUL to
believe that they needed to be white to be beautiful.

The company rebranded the cream from Fair and Lovely to Glow

and Lovely, removing the word Fair from the brand.

In March 2019 HUL's advertisement for its beverage Brooke Bond

Red Label tea was criticised on social media. A
company tweet referred to the Kumbh Mela as a place where
elderly people get abandoned by their family members.

This resulted in a severe backlash in the form of an adverse

hashtag trending on Twitter '#BoycottHindustanUnilever.
We decided to invest One Lakh Rupees in L& T, over a month
ago. The value of a share of Hindustan Unilever was 2171.05
INR, when we invested the money.i.e. 04th May 2022.

During this month the value of the share of L& T has rise from
2171.05 INR to 2290.10 INR. If we calculate the growth
percentage, it comes to 5.46%.

So, now the value of our profit from the investment is 5460 INR.
as on 03rd June, 2022.
Case Study-2

#2 Larsen & Toubro Ltd

Almost every Indian, might know that Larsen & Toubro Ltd,

commonly known as L&T, is a company that builds things.

L&T is an Indian multinational conglomerate. Its core businesses

are at the heart of India's modernisation thrust - engineering,
construction, manufacturing, technology and financial services.

L&T has utilised its deep knowledge and experience gained over
8 decades and has been at the forefront of indigenous
development of engineering design and manufacturing
capabilities.

L&T owes its continued success to constant reinvention and

innovation. This tweet from the company ties in perfectly with the
ethos of the company.
In 1950, when shares of L&T were listed, its paid-up capital was
just Rs 20 lakhs with a turnover of Rs 10.9 m.

Currently the market capitalisation is close to 3,000 bn and

turnover for the last financial year was Rs 1,359.8 bn.

The company has rewarded investors with a mind boggling 10

bonuses over the last 7 decades.
The company's shares also constitute a part of NIFTY 50 index.
Its global depository receipts (GDR) are listed on the Luxembourg
Stock Exchange and London Stock Exchange.

The company has a dramatic saga of hostile takeovers.

In the 80's when a British businessman, Manu Chhabria started

acquiring shares of the company, the management soon
acknowledged that he was interested in taking over L&T.

The chairman of L&T approached Dhirubhai Ambani to protect

L&T from the takeover and invest in the company as a white
knight.

Ambani didn't let the opportunity to pass and bought 12.4% from
the open market.

But Ambani had a different agenda. He continued to buy shares

from the open market and increased his holdings to 18.5%

Soon the tables had turned! It was evident that Ambani was the
one trying to takeover L&T.

However, when Congress, the biggest supporter of the Ambanis

back then, lost power in 1989, the new government intervened,
making sure the Ambanis were out of the company, and they
were forced to resign from the board.

Following this, Ambanis remained passive investors in L&T for

over a decade and in 2001 sold their entire stake to Aditya Birla
Group company Grasim, L&T's competitor in the cement industry.

The company fought tooth and nail against the entry of Birla's and
after months of negotiations, Birla finally exited L&T, selling its
stake to an employees' trust run by L&T employees in June 2003.
As a trade-off, Birlas acquired L&T's cement division and named it
UltraTech.

But the prey itself became the predator.

In 2019, the acquisition of Mindtree, one of India's leading

information technology companies by L&T, made headlines for
several days as a result of it being India's first hostile takeover in
the IT sector.

In 2019, a scandal broke out when it was reported that L&T

facilitated the payment of $3.64 m in bribes to Indian government
officials on behalf of technology major, Cognizant.

The company has till date denied any involvement.

We decided to invest One Lakh Rupees in L& T, over a month
ago. The value of a share of L&T was 1633.95 INR, when we
invested the money.i.e. 04th May 2022.

During this month the value of the share of L& T has rise from
1633.95 INR to 1650.05 INR. If we calculate the growth
percentage, it comes to 0.99%.

So, now the value of our profit from the investment is 989.99INR.
as on 03rd June, 2022.

Comparison between the value of shares of both the

companies mentioned earlier:-
The value of shares of both the companies mentioned
above have risen.
The value of one share of Hindustan Unilever is
RS.2290.10. and the value of one share of L&T is 1650.05
INR.
But if we talk about the net growth of the value of shares, it
is found that the value of share of Hindustan Unilever is
increased more than that of value of Share of L&T.
The percentage increment in the value of share of
Hindustan Unilever is 5.46%, whereas the percentage
increment in the case of value of share of L&T is 0.99%.
That is a significant difference between the performances
of shares of both the companies.
Conclusion
1.The reason for the growth of the value of share of
Hindustan Unilever was mainly because of the type of
business they are in. Hindustan is FMCG company. The
business of FMCG goods producer company has been
exponentially increased after the Corona outbreak.
Because when the peoples are living in home more than
they are outside and due to the storing habit of daily use
items of peoples, the business is on boom since than. The
value of share of Hindustan is increased more because of
the increased business, which finally resulted in increased
trust of people in the share of Hindustan.
2. The reason for the less growth of the value of L&T is
because this company mainly deals in the construction,
engineering. When the other construction companies
faced a great loss during this period of corona outbreak, it
managed to grow a little due to the trust of peoples in this
company.