Shares

Equity shares

Equity shares are commonly referred to common stock or ordinary shares. Even though the words shares and stocks interchangeably used, there is a difference between them. The term Stock is the aggregate of a member's fully paid up shares of equal value merged into one fund. It is a set of shares put together in a bundle. The "Stock" is expressed in terms of money and not as many shares. Stock can be divided into sections of any amount and such fractions may be transferred like shares.

Share certificate means a certificate under the common seal of the company specifying the number of shares held by any member. Share certificate provides the prima facie evidence of title of the members to such shares. This gives the shareholder the facility of dealing more easily with his shares in the market. It enables him to sell his shares by showing marketable title. 

Equity shares have the following rights according to the section 85(2) of the Companies Act 1956.

1. Right to vote at the general body meeting of the company.

2. Right to control the management of the company.

3. Right to share in the profits in the forms of dividend and bonus shares.

4. Right to claim on the reciprocal after repayment of all claims in the case of winding up of the company.

5. Right of pre-emption in the matter of issue of New capital.

6. Right to apply to court if there is any discrepancy in the rights set aside.

7. Right to receive a copy of the statutory report, copies of annual accounts along with audit report.

8. Right to apply the central government to call an annual meeting when a company fails to call such a meeting.

9. Right to apply the Company Law Board for calling and extraordinary general meeting.

Importance of equity shares 

In a limited company equity shareholders are liable to pay the company's debt only to the extent of the share in the paid up capital. The equity shares have certain advantages. The main advantages are:

a. Capital appreciation

b. Limited liability

c. Free tradability

d. Tax advantages

e. Hedge against inflation

Capital appreciation: Capital appreciation is a rise or increase in an investment's market price over a time period. Capital appreciation is the difference between the purchasing price and the selling price of an equity shares. For example, If an investor bought a stock for ₹100 per share, and the stock price rises to ₹120, the investor has earned ₹20 in capital appreciation.

Limited liability: Limited liability is a type of legal protection for shareholders and owners that prevents individuals from being held personally responsible for their company's debts or financial losses. Staying at above of your accounting and bookeeping has never been so easy.

Free tradability: There is no limitations of trading of equity shares. The shareholders are free to sell their securities at their own will. Due due to the launch of online trading of securities it had made easier for shareholders to hold or trade their securities freely, with less brokerage charges.

Tax advantages: When you invest your investible money in shares, you make capital gains on the sale of shares which are taxable. Conversely, if you sell a listed equity share after a one year from the date of purchase, you earn long-term capital gains (LTCG). Long term capital gains in excess of Rs 1lac are taxable at the rate of 10% without the benefit of indexation.

Hedge against inflation: Equities have traditionally been viewed as an inflation hedge asset class. The theory is simple: a company's revenues and earnings would also rise with inflation over the course of time. From a long-term perspective of shareholders objectives, equities may therefore be considered an inflation hedge.