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Today, we'll discuss Equity Shares. Who can tell me what an equity share is?
I think equity shares are the common shares issued by a company, right?
Exactly! Equity shares do not have a fixed dividend. The dividends vary based on the profits of the company. Can anyone explain what that means?
It means that if the company doesn't make a profit, we might not get any dividends at all!
Correct! And since there’s no guarantee of receiving a fixed amount, this can be riskier. But it also allows shareholders to vote in company decisions, which is a crucial part of their ownership.
Does this mean equity shareholders have more risk compared to preference shareholders?
Yes, and that's a great segue to our next topic! Let's summarize Equity Shares: they have no fixed dividend and holders can vote, but they face higher risks.
Now, let's move on to Preference Shares. Student_4, could you share what you know about them?
Preference shares have a fixed rate of dividend, right?
That's correct! Unlike equity shares, preference shareholders receive dividends before equity shareholders. What happens if the company faces liquidation?
Preference shareholders get paid before equity shareholders!
Exactly! Preference shares are less risky in that sense. However, they usually do not have voting rights. Let's summarize: Preference Shares provide fixed dividends and priority in payments.
Moving on to some basic terms related to shares, starting with Face Value. What do you think it represents?
Isn't it the value printed on the share certificate?
Right! It’s the original value. Now, what about Issue Price?
It can be at par, premium, or discount. So, if a share has a face value of ₹10, it might be issued at ₹12, which means it's at a premium.
Great example, Student_3! This leads us to 'Calls'. What do you understand by calls?
Calls are amounts that shareholders need to pay in installments, like when you apply for shares.
Exactly! They can be in stages such as Application, Allotment, First Call, and Final Call. Let’s recap: Face Value is the printed value, Issue Price can vary, and Calls are installment payments.
Example of Equity Shares: A company issues 1,000 equity shares with a face value of ₹10. Dividend is declared at 10% in a good year, so each shareholder earns ₹1 per share.
Example of Preference Shares: A company issues ₹1,00,000 preference shares with a fixed dividend of 8%. During the financial year, the company must pay ₹8,000 to preference shareholders before paying any dividends to equity shareholders.
Equity's fickle, profits sway, Preference pays fixed, come what may.
Imagine a bustling marketplace where sellers offer fresh fruits. Equity shareholders are the vendors hoping to sell their goods at varying prices based on demand, whereas preference shareholders are like a special group granted discounts, ensuring a steady return regardless of the market chaos.
Remember E for equity and E for earnings that vary; P for preference and P for priority in payments.
FIC - Face value, Issue price, Calls: Remember these three key terms for shares!
Term
What are Equity Shares?
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Term
What are Preference Shares?
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Term
Define Face Value.
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Term
What is Issue Price?
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Term
What are Calls?
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Shares without a fixed dividend, where holders’ dividends vary based on company's profits.
Shares with a fixed rate of dividend and priority in dividend payment over equity shareholders.
The nominal value of a share as printed on the share certificate.
The price at which shares are offered for sale to investors.
Instalment payments that shareholders must pay when purchasing shares.
This section covers the various types of shares in a joint stock company, focusing on Equity and Preference Shares, as well as basic terms related to share issuance.
In this section, we explore the two main types of shares issued by joint stock companies: Equity Shares, which do not guarantee fixed dividends, and Preference Shares, which offer fixed dividends and priority in payments. Basic terms such as Face Value and Issue Price are also discussed.
This section discusses the two primary types of shares that a joint stock company can issue: Equity Shares and Preference Shares.
By understanding the types of shares, students will better grasp the foundational elements of equity financing and how joint stock companies manage shareholder capital.