An Overview of Shares

Asha Saud Jaiswal

Assistant Lecturer, DMC
Asha Saud (Jaiswal) is a part time assistant lecturer of Darchula Multiple Campus, Tribhuvan
University in Finance since 2069. She is an M.B.S. in Finance from Tribhuvan University. Her
fields of interests, expertise and research are Finance, Marketing and Management. She has
written a number of articles on Finance and Marketing.)

An organization in order to raise money divides its entire capital into small units of equal value.
Each unit is called a share. In other words, shares are units of ownership interest in
a corporation or financial asset that provide for an equal distribution in any profits, if any are
declared, in the form of dividends. It can also be defined as a smaller part of capital that is
known as “Share” and a person, who owes shares is known as the shareholder.

According to Oxford Advance Learners Dictionary (2000, p.1177), a share means "any of the
units of equal value into which a company is divided and sold to raise money". A share is
nothing but an indivisible unit of a company’s capital to be sold among individuals to increase
profit of the organization. Therefore, a share is the interest of the shareholder in the company. It
is measured by the sum of money for the purpose of liability in the first place and of interest in
the second place. Holders of the shares are called shareholders or members of the company.

1. The share of a company shall be a moveable property. It is transferable in the manner

provided by the articles of the company.
2. The share capital is nonrefundable except in the case of winding up and reduction of
capital.
3. Each share in a company shall have a distinctive number.

An individual owning one or more than one share of an organization is called a shareholder.
According to Oxford Advance Learners Dictionary (2000, p.1177), shareholder can be defined as
"an owner of shares of a company or business". In simpler words, an individual purchasing one
or more than one share from any private or public organization is called a shareholder.

 A shareholder can sell his shares anytime depending on the current value of the share.
 He/she can purchase any new share issued by any other or same organization.
 A shareholder has the right to declared dividend.
Why do people invest in shares?

An organization pays the shareholders for investing in their company’s shares. The income
earned by an individual by investing in an organization’s share (private or public) is called as
dividend.

What is Retained Earnings?

The profit earned by an organization is put into use in the following two ways:

 It is paid to the shareholders as dividend.

 The profit earned by the organization is not distributed amongst the shareholders but is
retained and reinvested in the organization. This portion of the income is called retained
earnings.

What is a Share Certificate?

When an individual purchases shares from any organization, he/she is issued a certificate as a
proof of his investment. Such a certificate issued by an organization to the shareholders is called
a share certificate.

Types of Shares

1. Equity Shares

Equity shares also called as ordinary shares are the shares where the payment of dividend
is directly proportional to the profits earned by the organization. Higher the profits
earned, higher the dividend, lower the profits, and lower the dividend. In an equity share,
dividends are paid at a fluctuating/floating rate.

2. Preference Shares

Shares which enjoy preference over payment of dividends are called preference shares.
Shareholders enjoy fixed rate of dividends in case of preference shares.

3. Founder Shares

Shares held by the management or founders of the organization are called as founder
shares.

4. Bonus Shares

Bonus shares are often issued to the shareholders when the organization earns surplus
profits. The company officials may decide to pay the extra profits to the shareholders
either as cash (dividend) or issue a bonus share to them.
 Bonus shares are often issued by organizations to the shareholders free of charge as a gift
in proportion to their existing shares with the organization.

How to buy shares?

 Find a good broker for yourself. Make sure he has good knowledge about the share
market and can guide you properly.
 To invest in shares one needs to open a DEMAT Account for online trading. A DEMAT
Account is mandatory for sale and purchase of shares anytime and anywhere.
 An individual needs to have his PAN Card, a bank account, other necessary Identity
proofs, address proofs and so on.

Valuation of Shares
The value of every share is printed in front position of the shares which is called as par value or
face value of shares. Except the face value, it has also a market value on stock exchange market
which is determined by the demand and supply. However, the market price does not reflect the
true value of shares and requires a proper evaluation of shares.
Need For Valuation of Shares
Specially, in the case of private limited company the shares of such a company are not freely
purchased and sold to the public. In that case, the valuations becomes necessary. According to
Dangol, Prajapati, Tamrakar and Upadhyaya, the following are the circumstances where need for
the valuation of shares arises (2064, p.10):
 Where company amalgamate or are similarly reconstructed.
 Where share are hold jointly by the partners in a company and partnership firm dissolved.
 Where a portion of the shares is to be given by a member of proprietary company to
another member as the member cannot sell it in the open market.
 When a loan advanced on the security of shares.
 When shares are given in a company as gift.
 When preference shares or debentures are converted into equity.
 When equity shareholders are to be compensated on the acquisition for their shares by the
government under a scheme of nationalization.
The value of shares can be affected by different factors such as the nature of business, the
income yielding capacity of the company, the demand and supply of the shares, the availability
of sufficient assets over liabilities, general economic condition, reserves of the company, and
financial, political, and other factors affecting the business.
References
Hornby, A.S. (2000). Oxford advanced learner’s dictionary. Oxford: Oxford University Press.
Dangol, R.M., Prajapati, K.P., Tamrakar, M.R. & Upadhyaya, T.P. (2064). Accounting for
business. Kathmandu: Taleju Prakashan.