What Are Shares?
Shares represent ownership in a company. When you buy shares, you become a part-owner, and your portion of ownership depends on how many shares you hold.
There are two main types of shares:
- Ordinary or Equity Shares
- Preference Shares
Ordinary Shares (Equity Shares)
Meaning:
These are the most common type of shares issued by companies. If you own equity shares, you:
- Get voting rights
- Share in the company’s profits (dividends)
- Benefit when the share price goes up
But — if the company shuts down, you get paid last after all debts and preference shares.
Key Features:
- Carry voting rights
- Dividend is not fixed – depends on profit
- Can benefit from capital growth
- Higher risk, higher reward
Example:
Ravi buys 100 equity shares of TCS. If the company does well, the share price rises, and Ravi earns profits. He also gets voting rights in the company’s decisions.
Preference Shares
Meaning:
Preference shares come with a fixed return (dividend) and are paid before equity shareholders. However, most don’t have voting rights.
These are like VIP seats — they get preference in dividends and return of capital, but with limited powers.
Key Features:
- Fixed dividend payout (usually in %)
- No or limited voting rights
- Get priority in dividends and winding-up payments
- Safer than equity, but lower growth potential
Types of Preference Shares:
- Cumulative – Unpaid dividends are carried forward
- Non-Cumulative – No carry forward if dividend isn’t paid
- Convertible – Can be converted into equity shares
- Non-Convertible – Cannot be converted
- Participating – May get extra profit share
- Non-Participating – Only fixed dividend
Example:
Priya buys preference shares in Reliance at 7% annual return. Even if the company doesn’t grow fast, she gets her 7% yearly dividend before equity holders get anything.
Quick Comparison Table
| Feature | Equity Shares | Preference Shares |
|---|---|---|
| Dividend | Variable | Fixed |
| Voting Rights | Yes | Usually No |
| Risk Level | Higher | Lower |
| Profit Potential | Higher | Limited |
| Priority in Payment | After Preference | Before Equity |
| Suitable For | Growth seekers | Income seekers |
Conclusion
Equity shares are great if you want long-term growth and don’t mind ups and downs. Preference shares are better for those who want steady, fixed returns with lower risk. Both serve different goals, and investors can choose based on their risk tolerance and income needs.
