Shares – what does it offer?

Shares – call it share, equity or stock all are the same thing, just used in different regions. For example, here in India “share” term is used, while in Europe is familiar with “equity” and “stock” is refered in USA “shares” refer to the ownership in the company. How company needs capital (money) to perform operational or strategic functions like expansion. The amount of money needed is very huge; hence company cannot rise on its own. It seeks to finance these actions by either borrowing money (debt financing) or raising money by selling part of the company (equity financing) through issuing shares. If company chooses to borrow money, it has to pay the amount back with interest where as in other case, company don’t need to pay them back. Hence to raise money company goes public. By “going public” it means that company gets listed on stock exchange and starts issuing shares to investors. Company at initial level first sale of stock issued, it is known as Initial Public Offering (IPO). These IOP’s are offered at primary market. Those pre owned shares of firm with individuals are traded in secondary market. Shares also work as component of individual retirement portfolio.

                   Those who have ownership in the company are referred as shareholders. These phases also represent claim on company’s assets and earning. In return for paying/owning these phases, shareholders are entitled to several corporate actions like dividends, bonus, etc and other benefits. There shares provide voting rights to the shares holders in deciding board of director. Any benefit from these corporate actions is based entirely on the performance of company. Apart from there, shareholder realizes capital gains where rise in share prices enable holders to profit by selling share for more.

What rights & benefits shareholders get –

• Participate in annual general meeting
• Receiving reports & information
• Dividend & dividend investment plan
• Further issue of share
• Share buy back
• Corporate actions

Being a shareholder doesn’t mean person enjoy total benefits it is also associated with sharing of risk as company performance may suffer due to several factors. Owning more shares give large portion of profits. Shareholder having ownership has limited liability that means he is not personally liable if company is unable to pay debts. Hence, the maximum value lost by investors (shareholder) is the value of investment. Another risk is that company has no obligation to pay out the dividends which means it is totally Upto Company whether it wants to provide benefits. But generally they give such benefits in order to attract more investors for their financing purpose.

          To sum up these shares provide great return on investment with great risks link to it. Still it outperforms other financial investments for investments like loans & saving account with an average return of 10-12%.

 (Written By Apoorv Sharma)