What are Common Shares and how are they Beneficial?

Published by Sharekhan Education | May 23, 2021

What are Common Shares and how are they Beneficial?

Common share of stock is a very familiar way used by corporate to raise capital without having to incur any debt. An individual who owns shares is called a shareholder. A common share or a stock when held by anyone represents part ownership of that shareholder in the company.

The common shareholder can have various benefits of holding shares of a company, such as:

1. He becomes a part-owner without worrying about day-to-day operations. Some executives and managers can run the business and sweat for the company’s growth and performance.
2. Being a shareholder gives voting rights to a shareholder. Shareholders have a certain amount of say, depending on the number of shares they own, in the important decisions. Such as the appointment of the board of directors, issuing of dividends and bonus shares, raising capital, etc.
3. Although the voting right becomes important for a bigger shareholder, the retail shareholder is more interested in earning potential income or wealth by owning the shares. He can earn income from the dividends declared by the company and can also sell his shares in the stock market for a profit.
4. As a shareholder one has limited liability towards the company which can shield the shareholder from financial obligations of the company and are liable only to shares value.
5. Holding shares can enable a shareholder to possibly beat inflation. It has been seen in the past that the returns generated by shares if much higher than the average inflation during a year can increase the potential purchasing power of the shareholder
6. Shareholders do get the first right to participate in new capital raising via investment vehicles such as rights issues.  This can give the advantage of purchasing new shares at a discounted price before the general public.

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