To expand the business an organisation need to increase its capital. For this reason a business company divides its whole capital into small portion of equivalent value which is called share.
A share is only a small portion of an organization’s capital which will be sold among the financial institutions and people to expand the business of company.
If a people or financial institution owns one or more share then they are known as shareholder. In short, when an individual buy one or more shares from a listed company then they are identified as a shareholder.
Any time a shareholder can trade old shares at existing market value.
Existing shareholders can trade new shares of the same company.
Getting dividend or any other bonus from purchased share is the right of a shareholder.
Dividend or Profit
Purpose of invest in share market:
As per rules, every company has to declare dividends to the shareholders if they make profit. So An investor earns dividend by investing in shares of a company.
There are two ways to distribute the profit of the company to the shareholders:
1. Distribute to the shareholders as dividend.
2. If don’t distribute then it can retained or reinvested to the company again. This part of the earnings is known as retained earnings.
Share certificate is a document which is issued by a company to the shareholders for purchasing shares of that specific company. It is given to the shareholders as a proof of his investment.
Different types of Shares
1. Equity Shares
This kind of share is also known as ordinary shares where the amount of dividend is related to the profit eared by the company. The more the profits earned the more the dividend will declare, on the other hand low profit, low dividend. Dividend is paid on the basis of profit for equity shares.
2. Preference Shares
The shares which get preference in the time of paying dividends are known as Preference shares. The company declares fixed rate of dividend to that kind of shareholders.
3. Founder Shares
The shares which are owned by founders of the company are called founder shares.
4. Bonus Shares
When the company make extra profits then they decide to distribute those profits to the shareholders in terms of cash dividend or shares. Those shares are called bonus shares. It is distributed at free of cost.
Process of purchasing shares:
First of all an retail investor have proof of address, bank account etc. and the financial institution must have the permission of the government to trade in share market.
Open an account with an authorised broker house. That institution must have the sound knowledge about financial market.
Deposit money into that account for necessary investment. An investor can buy or sell his shares at any time at market price. He will be responsible for the loss or profit made by his investment.
A stock market or securities exchange is a place to trade the shares, stocks, bonds of the company at market price.