Equity shares (or common stock) represent ownership in a company, making the holder a part-owner with a claim on assets and profits, voting rights, and potential returns from dividends or price appreciation (capital gains). They are a permanent source of capital for companies, offering investors potential growth but also higher risk, as they are the last to be paid if the company liquidates. Let’s take an example for understanding; there is a Company, ABC Ltd, which needs a capital of Rs. 100 Crores for expansion. It will go to the public to raise the capital. The capital of ABC is divided into 1,000,000 shares of Rs. 1000 each amounting to Rs. 100 Crores. So, if a person wants to invest, he has bought 1,000,000 shares at a rate of Rs. 1000 each. Let us say Mr. X wants to invest Rs. 500,000/- in the company. For this, he has to buy 500 shares of Rs. 1000 each. Let’s say Mr. Y buys 700 shares of Rs. 1000 each, which means that Mr. Y has shares of Rs.700,000. Here, Mr. X & Mr. Y become the company’s shareholders, and they will share the Profit and Loss of the company proportionate to their holdings.
From this example, it is clear that Shares are a division of Capital. There are various types of Shares a Company can issue for raising capital, like Ordinary Shares, Preference Shares, Redeemable shares, non-redeemable shares, Cumulative Preference shares, etc.