Important Terms - I

PART I

• Company
  
  "Tell me thy company, and I'll tell thee what thou art."
  - Miguel De Cervantes
  
  Organization engaged in business as a proprietorship, partnership, corporation, or other form of enterprise. Originally, a firm made up of a group of people as distinguished from a sole proprietorship. However, since few proprietorship owe their existence exclusively to one person, the term now applies to proprietorship as well.
  
  An organization of individuals conducting a commercial or industrial enterprise. A corporation, partnership, association, or joint stock company.
  
  
• Shareholder's: Liabilities and Rights
  
  A Company has an independent legal identity of its own, quite distinct from its shareholders. This means a company can enter into contacts without involving its investors. Therefore, a shareholder cannot be held liable for the actions of a company, or of its directors or of its employees. The liability is limited to the value of share he possess in the company.
  
  As a shareholder, you can transfer your ownership rights by selling shares to others. Shares are movable property which can involve in any type of transaction permitted by law. Since, the company has an independent existence of its own, it is not affected by any changes in its owners.
  
  
• Public Limited and Private Limited Companies
  
  The abbreviation Ltd. after a company name indicate that it is a public limited company, a type of limited company whose shares may be offered for sale to the public. When we talk of investment in shares, we actually talk of Limited company Whereas the shares of private Limited company are neither quoted on the stock exchange, nor are they freely available for sale. These companies are prohibited in selling their shares to the public.
  
  
• Preference Shares and Equity Shares
  
  Preference stocks is a security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights.
  
  Equity Shares are securities that give the holder the right to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
  
  
• Right Offerings
  
  RIGHTS OFFERING refers to issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are transferable, allowing the holder to sell them on the open market to others who may wish to exercise them.
  
  
• Bonus Shares
  
  They are additional shares issues given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company.
  
  If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.
  

Why invest in Shares?

Goodness is the only investment that never fails.

-Henry David Thoreau (1817 - 1862), Walden: Higher Laws, 1854

• You Capital appreciate quickly.
  
  
  Investment in shares can easily payback at least double of what is possible from Fixed Deposits in banks, if invested wisely.And this guide will help you do so.
  
  
  
• You also get Income.
  
  
  Income in the form of Dividends is offered by the Bourse in addition to capital appreciation on the value of the Share. Dividend is a amount that the company distributes every year to its shareholders out of the profits it earns. As a rule of thumb, the amount likely to be received as dividend is around 1-2% of the market value of your shares.
  
  
  
• No Speculation.
  
  
  Yes, you got it right. Investing in shares is not speculation, which is a very common cliché. Some people even call it Gambling. This is simply not true. If a share is bought after proper assessment of the company and the market, the risk is minimal and limited. It's the degree of risk that you are willing to take that will decide, whether it is Speculation or Investment.
  
  
  
• Liquid Investment.
  
  
  A liquid investment is one which can be easily converted into Cash. They are much easier to buy and sell online than others forms of investment, say, Real Estate or Fixed Deposits. But be chary in selecting Stocks of companies, since all shares are not equally liquid. Companies that are traded frequently only allows great liquidity.
  
  
  
• Easy to manage.
  
  
  Investment in shares are easy to manage and control than other forms of investment. These days, generally, the brokerage firm helps you to manage them easily.
  
  
  
• You don't need a lot of money to start.