Equity Shares and their Shared Privileges
What is equity shares? Equity shares refer to the fraction of a company’s assets that a company gives shareholders in exchange for money. When you invest in a company, you are trading money for shares in the company. As a shareholder, you enjoy a share in the profits, risks and losses in value of the business. These shares, also called “stocks”, give investors the right to vote, a share of the income and a claim to the company’s assets.
Many companies, publicly traded as well as private, offer shares as a way to finance growth, for example, to expand or buy new equipment. As the company continues to grow, the need for capital may remain and will increase during times of increased growth. As more investment capital is needed to support this growth, the company will search for additional investors (or for additional investment from the same investors) to provide more capital.
Why Investors Invest in Equity Shares
- Permanent source of funds
Equity shares are a company’s permanent capital and cannot be redeemed from a shareholder at any time.
- Bestows ownership rights to shareholders
Equity shareholders are the actual owners of a company. This means that they also share in the growth and success of the corporation.
- Provides voting rights to shareholders
Since stockholders share ownership rights, they also enjoy voting rights. For example, when the company elects a new Board of Directors or is deciding upon key strategy changes, the company will ask its shareholders to take part in the vote.
- Grants limited liability according to the amount of equity share
Shareholders’ liability is limited to the value of the shares they own within a company. This is because a company is an individual entity, separate from its shareholders. Once a stockholder has fully paid the price of share, further losses will not be his liability even at the time of liquidation.
- Subject to liquidation with all shareholders
A company’s Board of Directors annually present company’s financial report attended by everyone who owns a stock in the company.
What are the different types of equity shares
- Common stock
This is the most frequently traded (and owned) type of stock, providing shareholders all the aforementioned equity share benefits and liabilities. It means that a common stock owner has a stake in the company’s profit, ownership, voting rights and liquidation. If the company pays out a dividend, common stock owners are entitled to a portion of it.
- Preferred stock
This stock type entitles shareholders to a fixed income stream, considerably more predictable and reliable than common shares provide. Shareholders receive an annual dividend equal to an original issue price multiplied by a coupon rate provided in the preferred stock.
Shareholders of preferred stocks are above common stockholders in priority. For example, if the board suspends preferred dividend payments, common stockholders’ dividends are suspended as well.
Preferred stockholders do not have voting rights as common stockholders do. They cannot influence the company’s strategic direction.
- Convertible preferred stock
This type of equity shares establishes a subdivision of preferred stock. At a so-called conversation ratio, these primarily preferred stocks can be exchanged for common shares.
Different Ways to Trade
Investors interested in exploring stocks have several possibilities. They can open a brokerage account with a stockbroker or discuss trading stocks with their local banks. For those interested in trading stocks online, one option is trading via CFDs. CFDs, contracts for difference, are a modern way to trade stocks in some of the words biggest and most interesting companies without purchasing the underlying asset. This means there is no hassle selling the company’s stocks when you want to divest the asset.
Additionally, CFD trading gives traders the option to go long and short, choosing to trade that the stock’s price will increase or decrease. Traders profit if they have speculated accurately. Plus, with CFDs, you can trade on margin with leverage, gaining more trading power with less of your own capital.
Start investment in equity shares with r1investing
Are you interested in finding out more about trading shares on CFDs at r1investing, a regulated broker? In addition to offering CFDs in a wide array of assets, including some of the most-well-known publicly traded companies across the globe, we have dozens of articles, videos on demand and other learning tools in our education centre.
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