Shares, also known as stocks or equities, represent a unit of ownership in a company. When a company issues shares, it is effectively selling a small piece of the business to investors. The total value of a company’s shares is known as its market capitalization.
By buying shares in a company, investors become shareholders and have a claim on a portion of the company’s assets and profits. Shareholders also have certain rights, such as the right to vote on company matters and the right to receive dividends (if the company pays them). The value of a share can fluctuate based on a number of factors, including the company’s financial performance, overall market conditions, and investor sentiment.
Shares can be traded on stock exchanges and their prices are determined by supply and demand in the market. Some shares can also be traded over-the-counter (OTC) which means that they are not traded on a centralized exchange but instead through various market makers.
Kinds of Shares
In India, the most common types of shares are:
- Equity shares: These are the most common type of shares in India and represent ownership in a company. Equity shareholders have the right to vote on company matters and receive dividends.
- Preference shares: These shares have priority over equity shares when it comes to dividends and assets in the event of liquidation. They typically do not have voting rights, but they offer a fixed dividend and a higher claim on assets than equity shares.
- Sweat equity shares: These are shares issued to the employees of the company or its promoters as a form of remuneration for their efforts in creating or enhancing the company’s value.
- Bonus shares: These are additional shares issued by a company to its existing shareholders without any additional payment. They are usually issued as a reward for their loyalty to the company.
- Right shares: These are shares that give existing shareholders the right to purchase additional shares in the company, usually at a discounted price, before they are offered to the general public.
- Employee Stock Options (ESOPs): These are options given to employees to buy shares of the company at a later date at a pre-determined price. ESOPs are used as a form of incentive compensation.
- Depository Receipts: These are financial instruments that are traded on foreign stock exchanges and represent ownership in shares of a foreign company. Indian companies can issue American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) to raise capital from international investors.
Allotment of shares refers to the process of assigning shares to individuals or entities that have applied for and been approved to purchase shares in a company. The allotment of shares is typically done by the company’s board of directors, or by a committee appointed by the board.
Once a share application has been received and processed, the company will determine the number of shares that will be allotted to the applicant. This will depend on a number of factors, such as the total number of shares available for allotment, the number of shares applied for, and the price per share.
After the allotment of shares, the company will issue a letter of allotment to the applicant, which will state the number of shares allotted and the price paid for each share. The company will also issue a share certificate, which is a legal document that serves as proof of ownership of the shares.
In India, the allotment of shares is done by the registrar of companies (ROC) after the closure of the IPO or the rights issue, the registrar will verify the application and the payment of the shares, and then allot the shares to the applicants, and then the company needs to comply with the listing requirements on the stock exchange.
It’s important to note that the allotment of shares does not guarantee that the shares will increase in value. Share prices can fluctuate based on a variety of factors, including the company’s financial performance, overall market conditions, and investor sentiment.
Forfeiture of shares refers to the process of canceling shares that have been issued to a shareholder, typically because the shareholder has failed to meet certain obligations or conditions associated with the shares.
There are several reasons why a company may forfeit shares, such as:
- Non-payment: If a shareholder fails to pay for the shares, the company may forfeit the shares.
- Non-compliance with terms of the issue: If a shareholder does not comply with the terms of the share issue, such as not meeting certain conditions or not paying for the shares in a timely manner, the company may forfeit the shares.
- Non-compliance with regulations: If a shareholder fails to comply with regulations related to the shares, such as insider trading regulations, the company may forfeit the shares.
When shares are forfeited, the shareholder loses their rights to the shares, and the shares are returned to the company. The company can then reissue the shares to another shareholder or cancel the shares altogether.
In India, the forfeiture of shares is done under the compliance of the regulations of the Securities and Exchange Board of India (SEBI) and the Companies Act. If a company decides to forfeit shares, it must inform the shareholders in writing and give them a reasonable period of time to comply with the terms of the share issue. The company must also notify the registrar of companies (ROC) and the stock exchange where the shares are listed.
