Equity shares are an investment that allows individuals to own a portion of a company. However, not all equity shares are created equal. There are different types of equity shares, each with its own unique features and benefits. This guide will help you understand the different types of equity shares and how they work.

Ordinary Shares (Common Shares)

Common shares, also known as ordinary shares, are the most common type of equity shares. They represent ownership in a company and give shareholders the right to vote on important company decisions, such as electing board members and approving mergers or acquisitions. Common shareholders also have the potential to receive dividends, which are payments made by the company to its shareholders. However, common shares are also the most volatile type of equity shares, as their value can fluctuate based on market conditions and company performance.

Preferred Shares

Preferred shares are another type of equity shares that offer some unique features. Unlike common shares, preferred shares typically do not come with voting rights. However, they do offer priority when it comes to receiving dividends. This means that if a company is unable to pay dividends to all shareholders, preferred shareholders will receive their dividends before common shareholders. Preferred shares also tend to be less volatile than common shares, making them a more stable investment option. However, they may also offer lower potential returns.

Convertible Shares

Convertible shares are a type of equity share that can be converted into a different type of security, such as bonds or common shares. This means that if the company’s stock price rises, the investor can choose to convert their convertible shares into common shares, potentially increasing their returns. However, if the stock price falls, the investor may choose to keep their convertible shares as they are, avoiding potential losses. Convertible shares are often seen as a hybrid between equity and debt securities, offering some of the benefits of both.

Redeemable Shares

Redeemable shares are a type of equity share that can be bought back by the company at a predetermined price and date. This means that the investor has the option to sell their shares back to the company at a specific time, providing them with some level of security. However, redeemable shares often come with lower dividends and voting rights compared to other types of equity shares. Companies may issue redeemable shares to raise capital without diluting their ownership or control over the company.

Voting and Non-Voting Shares

One of the most common types of equity shares is voting shares. As the name suggests, these shares give the investor the right to vote on important company decisions, such as electing board members or approving mergers and acquisitions. Non-voting shares, on the other hand, do not come with voting rights. These shares may have higher dividends or other benefits to compensate for the lack of voting power. Companies may issue non-voting shares to raise capital without diluting their control over the company.

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