Types of Equity Shares

1. Authorised Shares

Authorized shares are the maximum number of shares a company can issue per its memorandum of association. This number is more like a ceiling; no matter how much a company wishes to grow, it cannot issue more shares than this limit without the approval of regulators and shareholders. Companies generally keep this number above the immediate requirement to accommodate future expansion.

2. Issued Shares

Issued shares are the stocks a company has issued to investors through:

• Public issues
• Private placements
• Employee stock options

Issued shares form the shareholder equity base and indicate the ownership distribution among shareholders.

3. Subscribed Shares

Once shares are issued, investors want to buy them. This is where subscribed shares come into the picture, as they are the shares that investors agreed to buy. If the demand falls short of the offering, subscribed shares may be less than issued ones.

4. Paid-Up Shares

Paid-up shares are the shares that investors have paid for. If a company has issued shares at ₹100 and the shareholders have paid only ₹50, those shares are termed as partly paid up. Fully paid-up shares mean the shareholders have bought the shares by making the full payment.

5. Bonus Shares

Bonus shares are a reward for existing shareholders based on the company's retained earnings. Instead of cash dividends, companies can declare bonus shares.

 

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6. Rights Shares

Companies needing to raise more funds sometimes issue rights shares to their existing shareholders. These are offered at a discount to the market price, thus giving the shareholders the "right" to purchase them before anyone else. Rights shares also ensure that current shareholders maintain their ownership percentage even when the company expands.

7. Preference Shares

Even though they are not equity share type, preference shares are worth mentioning as they have a hybrid nature of equity and debt. In case of liquidation and during the distribution of earnings in the form of dividends, preference share owners are prioritized. They lack voting rights most of the time and can be very helpful for someone who is looking to make money but does not want to manage ownership.

8. Sweat Equity Shares

Employees and directors receive sweat equity shares for their efforts in increasing the worth of the business. They get paid in shares instead of cash, usually lower than the market price of the equity shares. This kind of equity share type is great for getting and retaining good people while also ensuring that employees' interests align with the company's future growth.

Why Understanding Share Types Matters

Equity shares don't have too many hidden and nuanced types, but it's important to know them accurately whether you are an investor, an employee, or an entrepreneur. Each equity share type serves a specific purpose-from raising capital to reward contributors-and influences the way firms operate and develop.