We have already discussed the share market in brief in our previous article. Now let us see what are shares. Basically, shares are defined as the units of ownership in a company. What this really means is “anyone holding shares of the company, whether the number of shares is one or one lakh or 1 crore, is the owner of the company.” However, It must be remembered that the greater the number of shares, greater is the ownership.
A company issues shares to raise money from the public. People buy shares because they hope that the company will grow and they will make money by selling their shares. Besides selling their shares, shareholders can earn a profit from dividends. Dividends are nothing but a part of the company’s profit that is distributed to the shareholders. However, companies do not always give dividends.
How a company spends its profits
There are basically two ways:
a) It may announce a dividend per share to its shareholders.
b) Use the profits for other purposes such as expanding the business, acquiring other companies, etc.
But one must never forget:
Shares are not lottery tickets. They represent a business and must be taken seriously.
Types of Shares
There are two types of shares:
a) Preferred Shares: These are “less risky” shares with some additional benefits like the first claim on the dividend, etc. For more on preferred stocks, click here.
b) Common Shares: These are the shares available to the general public and are the most commonly available. The shareholders of common stocks have fewer rights and privileges than preferred shareholders.
Now that you know what are shares and the types of shares, I think we are ready to move ahead.
Please do share your thoughts below. If you think I missed something, please ask below in comments.