A company’s capital is divided into small equal units of a finite number. Each unit is known as a share. In simple terms, a share is a percentage of ownership in a company or a financial asset. Investors who hold shares of any company are known as shareholders.
Shares are of two basic types: common/equity and preferred.
Common stock entitles owners to vote at shareholder meetings and receive dividends.
Preferred stockholders usually don’t have voting rights, but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated.
Why do companies issue shares?
Companies issue shares to raise money from investors who tend to invest their money. This money is then used by companies for the development and growth of their businesses.
There are several other reasons why a company can issue shares
– To avoid debt
– Expansion of funding
– To improve borrowing ability
– To gain good market reputation