Ordinary shares, also known as equity shares, are the most common type of shares that companies issue. If you’ve ever invested in the stock market, chances are you’ve bought ordinary shares. Let’s understand what they are in simple, everyday language.
What Are Ordinary Shares?
Ordinary shares represent ownership in a company. When you buy an ordinary share, you become a part-owner of the business. This means you share in the company’s profits—and losses.
You also get the right to vote on important decisions, like choosing directors or approving mergers.
Key Features of Ordinary Shares
- Voting Rights:
- Each ordinary share usually gives you one vote.
- You can vote at the company’s annual general meetings (AGMs).
- Dividends:
- You may receive a part of the company’s profits as dividends.
- These are not guaranteed and depend on how well the company performs.
- Capital Growth:
- If the company grows and becomes more valuable, the price of your shares may rise.
- You can sell your shares at a higher price to make a profit.
- Last in Line:
- In case the company shuts down, ordinary shareholders are paid last—after all debts and other obligations are cleared.
Ordinary Shares vs. DVR Shares
| Feature | Ordinary Shares | DVR Shares |
|---|---|---|
| Voting Rights | Full (1 vote per share) | Limited (e.g., 1 vote per 10 shares) |
| Dividend Payout | Standard | Often higher |
| Share Price | Usually higher | Lower due to fewer rights |
| Suitability | Active investors | Passive income-focused investors |
Simple Example
Let’s say you buy 100 ordinary shares of a company called “HappyFoods Ltd.” These shares give you:
- A say in company decisions (1 vote per share)
- A chance to earn dividends when the company does well
- A potential gain if the share price goes up
But remember—if the company does badly, the value of your shares can fall too.
Why Should You Invest in Ordinary Shares?
- Ownership: You actually own a part of the company.
- Profit Sharing: You can earn through dividends and capital gains.
- Voice in Management: You get a say in how the company is run.
- Liquidity: Easy to buy and sell on stock exchanges like NSE and BSE.
Things to Keep in Mind
- Risk of Loss: If the company does poorly, share prices may drop.
- Uncertain Dividends: No fixed income—dividends are not guaranteed.
- Last Claim: In case of bankruptcy, ordinary shareholders get paid last.
Summary
Ordinary shares are the building blocks of investing in the stock market. They give you ownership, voting rights, and the opportunity to earn returns—but also come with risks. They’re perfect for long-term investors who believe in the growth of a company.
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