Equity shares, also known as common shares or ordinary shares, represent ownership in a company. When you own equity shares, you have a stake in the company’s ownership and potential profits. Shareholders typically have voting rights in company decisions and may receive dividends if the company generates profits. However, they also bear the risk of losing their investment if the company performs poorly. Equity shares differ from preferred shares, which have priority in dividend payments but usually lack voting rights. Investing in equity shares can offer the potential for capital appreciation as the company grows, making them a popular choice for long-term investors in the stock market.

Types of Equity Shares:

There are several types of equity shares, each with its own characteristics and rights. Here are some common types:
  • Common Shares (Ordinary Shares): These are the most common types of equity shares. Common shareholders have voting rights in company decisions and may receive dividends, although they are not guaranteed. They also share in the company’s profits and losses.
  • Preferred Shares: Preferred shareholders have a fixed dividend rate, and they are paid dividends before common shareholders. They typically do not have voting rights or have limited voting rights.
  • Preferred shares are considered less risky than common shares but usually offer less potential for capital appreciation.
    • Non-Cumulative Preferred Shares: With non-cumulative preferred shares, any missed dividends are not accumulated and are typically lost to shareholders.
    • Cumulative Preferred Shares: If a company misses paying dividends on cumulative preferred shares, the unpaid dividends accumulate and must be paid in the future before common shareholders receive any dividends.
    • Convertible Preferred Shares: These shares can be converted into a specified number of common shares at the option of the shareholder. This provides the potential for capital gains if the company’s stock price rises.
    • Participating Preferred Shares: These shares give preferred shareholders the right to receive additional dividends beyond their fixed rate if the company performs exceptionally well, sharing in the company’s profits with common shareholders.
  • Bonus shares: Bonus equity shares, also known as bonus shares, are additional shares distributed by a company to its existing shareholders at no cost. They are issued as a form of capitalization of company reserves or retained earnings. Bonus shares do not result in a change in the total market value of an investor’s holdings but increase the number of shares they own. This distribution is often done to enhance liquidity, increase affordability of shares, and reward existing shareholders without affecting the company’s financial position.
  • Right shares: Right equity shares are newly issued shares offered to existing shareholders at a predetermined price, typically below the current market value. Shareholders have the “right” to purchase these shares in proportion to their existing holdings, maintaining their ownership percentage in the company. This method of raising capital allows the company to raise funds from its current shareholders before offering the remaining shares to external investors. Right issues help companies raise capital efficiently while minimizing dilution for existing shareholders who can choose to buy or sell their rights.

Characteristics of Equity Shares

  • Ownership Stake: Equity shares represent ownership in a company. When individuals or entities purchase equity shares, they become shareholders and, in turn, co-owners of the company. The number of equity shares a shareholder holds is proportional to their ownership stake in the organization. As owners, equity shareholders have a vested interest in the company’s performance and success.
  • Voting Rights: Common equity shareholders usually have voting rights in the company’s decision-making processes. This means they can participate in crucial corporate matters, such as the election of the board of directors, approval of major business initiatives, and changes to the company’s bylaws. The number of votes typically corresponds to the number of equity shares held, providing shareholders with a say in shaping the company’s direction.
  • Risk and Reward: Equity shareholders are exposed to both the potential rewards and risks associated with their investment. On the positive side, they have the opportunity to share in the company’s profits. When the company performs well, it may distribute dividends to shareholders, which can be a source of income. However, unlike debt holders, equity shareholders are not entitled to fixed dividend payments. Instead, dividends are subject to the company’s discretion and financial performance.
  • Residual Claim: In the event of the company’s liquidation or bankruptcy, equity shareholders have a residual claim on the company’s assets. This means that after all debts, including those to bondholders and preferred shareholders, are settled, any remaining assets are distributed to equity shareholders. However, they are the last in line to receive payments, which makes them more exposed to the risk of not receiving anything if the company’s assets are insufficient to cover all liabilities.
  • Capital Appreciation: One of the primary attractions of equity shares is the potential for capital appreciation. As the company grows and its financial performance improves, the market value of its shares may increase. Equity shareholders can benefit from this appreciation when they sell their shares at a higher price than what they initially paid. This potential for long-term capital gains makes equity shares an appealing choice for investors looking to build wealth over time.


Equity shares represent ownership in a company and come in various forms. Their characteristics include ownership stakes, voting rights, risk-reward balance, residual claims in liquidation, and potential capital appreciation. Equity shares empower investors to participate in a company’s journey, share in its success, and potentially benefit from its growth.

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