Investing: The Basics

Equity Shares: The Basics

An equity share is a legal ownership stake in a company — not a loan, and not a guaranteed return. This guide covers the rights that come with ownership (voting, dividends if declared, information, pre-emptive rights on new issues, and a residual claim on liquidation), how equity differs from preference shares, the three different numbers attached to every share (face value, book value, and market price), how dividends work (record date, ex-date, and dividend yield), the mechanics and effects of bonus shares, stock splits, and buybacks, and how to read a company’s shareholding pattern (promoters, FPIs/DIIs, and public). It closes on the single most important risk fact about equity: in a company liquidation, equity shareholders are paid last — after employees, lenders, and preference shareholders — which is both the source of equity’s risk and, over the long term, the reason for its higher potential returns.