Equity shares are one of the main sources of funds for Companies. An individual can buy equity shares of any company listed on the stock exchange like NSE and BSE. All equity shareholders are part-owners of the company. Equity shareholders have the right to control management decisions of the company through the power of voting.
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SEE ALSO: Issuance Of Shares
Below mentioned are the different types of Equity Shares issued by the companies:
1) Equity Shares: These are the shares that are issued by the companies and listed on the stock exchange. Equity Shares are normal shares. Majority of the shares that are traded in the market are Equity Shares. Equity Shareholders can vote on important resolutions.
2) Differential Voting Rights Shares, DVR shares: DVR shares come with voting rights that are not same as Equity Shares. Voting rights vested with DVR shareholders is limited when compare to the normal Equity Shareholders. Differential Voting Rights Shares are traded at lower value in the stock market.
A company can have multiple classes of shares. Each share has an economic value as certain percentage of company stake and also a governance/control value with voting rights. Higher the voting rights, higher the hold over company. DVRs are issued when the company wants to raise investments, but not giving the decision making rights to the investors.
DVRs help the company’s CEO stay in control over the decision making rights. Tata Motors, Pantaloon Retail, Jain Irrigation are some of the Indian companies that have DVRs. Investing in DVRs are good for those who want high returns on investment and are ready to compromise on the voting rights. DVRs give higher dividends than the normal shares. Google, Facebook and Amazon are the popular international companies that issue DVRs.
3) Preference Shares: These shares have special or priority rights. Dividends are distributed to Preference Shareholders at a fixed rate and are first distributed to Preference Shareholders and then to equity share holders. At the time of winding up of the company, preference shareholders enjoy first right over Company assets vis-à-vis normal shareholders. Preference Shareholders don’t have any voting rights.
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Rights Issue: When the company requires more investment, it resorts to rights issue. The company gives its existing shareholders the right to subscribe to newly issued shares in proportion to their existing holdings.
SEE ALSO: Buyback Of Shares
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