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What are Shares and how it is different from Stocks?

Every investor in the share market must have heard the name of Shares. But unfortunately, they often get confused between Shares and stock. These well-known names in investing market and company; represent the ownership of a company. In this article, we will determine what is Shares, their type, and how it is different from stock?

History of Shares

There are many examples of setting up stock exchanges around the world. Whether in French in the 1100s, or Venice in the 1300s, merchants attempt to start in Italy. The stock market was first established in Antwerp (Belgium) and was called Beurzen. However, no stocks were listed on the Antwerp stock market, which is the foundation of today's stock market. There is an interesting story behind establishing the first trading company globally. Ships belonging to various professions were sailed around the world. But, at that time, there were risks like pirate attacks, sea storms, etc. As a result, very few ships reached their respective shores. This problem posed a different kind of risk in trading. So, business communities began to use multiple ships to reduce their load. Due to this, even if some ships did not reach the shore, they would not be completely damaged.

In this way, investors also reduced their risk and started investing in multiple ships at once. And thus, the idea of the stock market, share, and risk factor was born. These reasons led to the establishment of the stock market, and the stock market was launched worldwide.

What is Share?

A share signifies a unit of ownership that describes an equal proportion of a company's capital. A share authorizes the shareholders to a similar claim on profit and losses of the company. When a company issue shares in the market for the first time, they go for IPO (Initial Public Offer), and then the shares are bought by the investors; after some time, the investor sells those shares in the exchange, and then the investors buy those shares. Share is one of the essential parts of investment in the stock market.

If we say this in easy language, share means "Part," then when a person or institution sells the ownership of his company to increase investment in his company, we call it to share.

Even if you have only one share of a company, you will still be called a shareholder and can claim certain rights and entitlements. Once the IPO or primary public offer is completed in India, the shares are listed on the stock exchange, and you can trade (buy and sell) that share. These stocks or shares are listed on both NSE and BSE.

Issuance of shares by the company

A share reflects the person who has that share or has bought a company's share. The person will serve as the owner of that company. The company issue shares in the share market to get-

Who is a Shareholder?

The person who buys the exclusive part of a company becomes a shareholder, i.e., becomes the owner of the shares. An individual who buys the shares is called a shareholder. Shareholder means (partner), so if you purchase stakes in a company, you will also become a shareholder of that company. But we talk about the stock market; it is termed an investor. We hear about Investors many times, but do you know what an Investor is? If not, then let's know.

Any individual or entity who buys shares from the stock market and sells them after a certain period to get profitability is called an investor. The people buy and hold the shares of IPO and Trading and do not sell those shares in the market for many months and years, and then when the price of those shares goes very high in the market, they sell the share to get high profitability.

Types of Shares

There are various types of shares in India in which trading is done; for a while, we will only talk about stocks, not stocks. Below -mentioned are the types of shares-

There are preference and equity shares, but only in equity shares is trading. There are also some new types of shares, which are called shares with differential voting rights, and they are popularly known as DVR. There are many companies in India like Tata Motors that issue such shares. Now let's discuss in brief the type of shares-

1. Equity Shares -In general, Equity Shares are usually ordinary shares, and majorly, companies issue equity shares to raise their fund. Equity shares are traded actively in the secondary or stock market. An individual or firm having equity shares have voting rights in the company meetings, and they are also benefited to get dividends declared by the board of directors. The equity shareholder gets additional rights over the Preference shareholder in dividends and profits.

2. Preference Shares-Preference shares are the type of shares that give certain preferential rights compared to other types of shares. The main advantage that preference shareholders have are:

  • The shareholders of the preference share get the preference for the dividend payment.
  • Also, the preference shareholders have the first right to get repaid in case of winding up.
3. DVR (Differential Voting Right)- The shareholders of DVR have fewer voting rights than equity shareholders. To dilute voting privileges, companies provide extra dividends to DVR shareholders. The company issues DVRs to increase its capital structure without losing control of management affairs. DVRs enable the promoters to retain control over the company even when new investors are introduced. When the company issues equity shares, shareholders get one share and one voting right. That is not the case with DVRs, in one share may or may not carry one voting rights.

How are Shares different from stock?

The terms "Stock" and "share" are often used interchangeably, but in actuality, both the words have different meanings, which is why all investors need to know the meaning of both the words.

  • The major difference between a share and a stock is that- stock is a wider concept to reflect ownership in a company, while shares are the individual units of ownership.
  • Stocks are securities that convey ownership in a company. When a person buys a stock of the company, that person is not lending the company money but is buying a percentage of ownership in that company. When a person buys stocks in a given company, they have a claim on the part of its earnings and assets.
  • However, if we talk about Shares, it is an individual stock units. Share is the share in the share capital of the company. The share reflects the details of the investment size of the company.
  • A share is the smallest denomination of a stocks of the company. Therefore, the shareholders earn interest on the money invested in the company. This is the primary reason why people invest in a company. Another reason is that their investment in the company enhances its value.

Conclusion

In a nutshell, every company wants you to grow the business. The company needs a lot of money to grow its business. Therefore, requisite capital is needed to grow the business. In such a situation, companies issue shares to raise money from the public. The company prepares the capital structure to expand its business. Through IPO in the stock exchange, its shares are brought to the public. So that investors buy their stake in those shares in large numbers. It is easy for the investor to buy the shares of any listed company, and in return, the investor gets the dividend and profitability of the company.






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