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What is a Share? or Equity Share or Stock.
A company is planned by Mr.X assume with an investment of Rs.1000/-. He has only Rs.600/-
For remaining Rs.400/- to start the business, he has 2 options. Go for a loan.
Or raise money from public. Going for loan, right from the day he got loan,
he has to repay the emi from next month. Before business flourishes, loan burden will
squeeze him. So the second option is Issuing shares to the public and raising money
by sharing ownership in the business. Others buying the share become part owners
and so no interest or repayment burden.
So what he do? Rs.1000 is needed. So he decides, let me divide Rs.1000/- into Rs.10/- Shares.
So total number of shares is Rs.1000/Rs.10 = 100 Shares. Of these 100 shares, he himself buys
60 shares contributing Rs.600/- The remaining 40 shares he gives it to public who pays Rs.400/-
So total amount of Rs.1000 is got. Here Mr.X who is starting the business holds 60% of the share and
he is called the promoter shareholder. And others, public shareholders.
Whats the advantage for public Shareholders?
Many people dream of starting a new business but doesn't have time or resources.
By buying a share they become part owners of the company whose share they are buying.
Here lets assume he is purchasing 10 shares of a company say for Rs.100/-
If the company fails and make huge losses, their losses is limited to only the losses of the
10 shares they hold. And if the company makes profit, they are eligible to get the profits of the 10 Shares.
Profit Per Share or Earnings Per Share(EPS)=(Total Net Profit/Total No. Of Shares).
Profit is divided and shared. And hence the name Share.
