What Is Shares & Its Types?

If you’ve ever heard someone say, “I own shares in that company,” and nodded along without fully understanding what they meant—you’re not alone. The word “share” gets thrown around a lot, especially when people talk about the stock market, investing, or business news. But what is a share, really? And why do so many people talk about buying or selling them like it’s a big deal?

In simple terms, a share is your slice of ownership in a company. Whether it’s a tech giant or a growing startup, buying a share means you’re putting your money into their journey—with the hope that it grows and takes you along for the ride.

But here’s where it gets interesting: not all shares are created equal. There are different types of shares, each with its own set of benefits and risks. Understanding these differences isn’t just helpful—it’s crucial if you want to make smart investment decisions.

In this blog, we’ll break it all down in relatable insights into what shares are, why companies issue them, and the various types of shares you’ll come across as a new or curious investor.

💡 What Are Shares?

In the simplest terms, a share is a unit of ownership in a company. When you buy a share, you’re essentially buying a small part of that business. If the company performs well, you benefit. If it struggles, you feel the impact too.

Think of it like a pizza. The whole company is the full pizza, and each slice is a share. If you hold one slice, you own that portion of the business—along with any profits or losses that come with it.

Companies issue shares to raise money for growth, expansion, or even to pay off debts. In return, investors (like you and me) get a chance to be part of the company’s journey.

🧾 Why People Buy Shares

There are three main reasons why people invest in shares:

1. Capital Appreciation – Buying low and selling high to make a profit.
2. Dividends – Earning a share of the company’s profit, usually paid out quarterly or annually.
3. Ownership Rights – Voting on important company matters (applies mostly to equity shareholders).

📚 Two Main Categories of Shares

Let’s dive into the types of shares. Broadly, shares are divided into two categories:

1. Equity Shares (Ordinary Shares)

These are the most common type. When someone says they own shares of a company, they’re usually talking about equity shares.

• Ownership: You get voting rights and partial ownership.
• Dividends: You may receive a portion of profits, but it’s not guaranteed.
• Risk: High. If the company shuts down, equity shareholders are paid last—after everyone else (creditors, lenders, etc.).

Equity shares are ideal for long-term investors who want to grow wealth over time and can handle market ups and downs.

2. Preference Shares

These are less common and come with a few special perks:

• Fixed Dividend: Preference shareholders get a fixed dividend, no matter how the company is doing.
• Priority in Payment: In case the company is dissolved, they get paid before equity shareholders.
• No Voting Rights: In most cases, you can’t vote on company matters.

These are perfect for conservative investors looking for regular income and lower risk.

🔍 Types of Equity Shares

Within equity shares, there are a few sub-types:

a. Bonus Shares

Given free of cost to existing shareholders, usually when a company makes extra profits. It’s like a thank-you gift from the company for staying invested.

b. Rights Shares

Offered at a discounted price to existing shareholders, usually during fundraising. You get the first right to buy before the public does.

c. Sweat Equity Shares

These are issued to employees or directors as a reward for their contributions. It’s a way for companies to retain talent.

d. Voting and Non-Voting Shares

Most equity shares have voting rights, but some don’t. Non-voting shares still earn dividends but can’t influence company decisions.

🔍 Types of Preference Shares

Let’s look at the subcategories of preference shares too:

a. Cumulative vs. Non-Cumulative

• Cumulative: If the company misses a dividend one year, it adds up and pays you later.
• Non-Cumulative: Missed dividends are gone forever.

b. Participating vs. Non-Participating

• Participating: You get fixed dividends plus a share in extra profits.
• Non-Participating: You only get fixed dividends—nothing extra.

c. Convertible vs. Non-Convertible

• Convertible: Can be converted into equity shares at a later date.
• Non-Convertible: Stay as preference shares forever.

Real-Life Example

Let’s say Company XYZ is doing well and wants to raise funds. It issues equity shares. You buy 100 of them. A year later, the share price goes up by 40%. You sell, making a nice profit.

Meanwhile, your friend buys preference shares in the same company. He doesn’t make a profit from share price movement but earns a steady 8% dividend every year.

Both of you invested in the same company but had different outcomes—because you chose different types of shares.

📊 How to Choose the Right Type of Share

Here’s a quick guide:

Investor Type	Recommended Share Type	Reason
Long-term wealth builder	Equity Shares	Potential for high returns
Risk-averse income seeker	Preference Shares	Regular fixed income
Employee/Insider	Sweat Equity	Ownership in exchange for work
Existing Shareholder	Bonus/Rights Shares	Extra benefits and discounts

📝 Things to Keep in Mind

• Do your research: Not all shares are equal. Always read up on the company’s performance.
• Diversify: Don’t put all your money in one type of share or company.
• Understand the risks: The higher the return potential, the higher the risk.