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Definition: Shares

The term ‘share’, in general terms, refers to a part of a larger amount that is divided among a number of people, or to which a number of people contribute.

In business, share represents a single unit of ownership in a corporation. The holder of this instrument (share being a certificate) is known as a shareholder.

The share entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses.

Companies may/ may not pay dividends on such shares.

There are two major types of shares-

1)      Common Stock ( Ordinary Shares),

2)      Preferred Stock  (Preference Shares )

Common Stock: It entitles the shareholder to an equal share in earnings of the company and a voting right at the company’s Annual General Meeting (AGM) and other official meetings. The company may/may not pay dividends to common stock holders.

Preferred Stock: It entitles the shareholder to a fixed periodic dividend but does not award him any voting rights in any of the official meetings of the organization.

Dividends on preferred stock may be deferred, but they have to be paid prior to paying them to the common shareholders.

Initially, shares were issued in physical form as certificates. Now, they are traded electronically in demat (i.e. , dematerialised) format. They are kept in electronic form with the shareholders Depository Participant (DP).

Information on a company’s shareholder pattern can be found in its Balance Sheet in the Equity Section.

Hence, this concludes the definition of Shares along with its overview.

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