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Shares represent ownership of a company. When an individual buys shares of a company, they become one of the owners of the company.

Shareholders choose who runs a company and are involved in making decisions, such as whether a business should be sold.

Shares

There are two types of shares which are normally issued:-

a. Equity shares and,

b. Preference shares

Equity shares are the most important source of raising long term capital by a company.

Equity shares represent the ownership of a company and capital raised by it is known as owner’s fund.

Equity shareholders do not get a fixed dividend but are paid on the basis of earnings by the company.

The preference shareholders enjoy a preferential position over equity shareholders.

As compared to the equity shareholders, the preferential shareholders have a preferential claim over dividend and repayment of capital.

Sensex

Preference shares are broadly classified as:-

a) Cumulative Preference Shares

b) Non-cumulative Preference shares

c) Participating Preference Shares

d) Non-participating Preference Shares

e) Convertible Preference Shares

f) Non-convertible Preference Shares

g) Redeemable Preference Shares

h) Irredeemable Preference Shares

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The secondary market is the market for the sale and purchase of previously issued securities. In the secondary market, securities are sold by and transferred from one investor or speculator to another.

It is therefore important that the secondary market be highly liquid (Originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly. This is how stock exchanges originated).

It derives its name from the fact that it is not the place of origin of the security, but the place where subsequent transactions of sale and purchase occur.

Securities in the market are not issued by the company directly to investors. Securities issued earlier are sold by an existing investor to another.

The company is not involved in the transaction at all. Any investor holding a security may choose to sell it. Likewise, any intending investor may wish to buy the security which had previously been issued by the company.

Kuwait Stock Exchange

However, the intending buyer cannot by the security from the company because it had already sold it out at the time of the public issue. The intending buyer and seller need not know each other.

Brokers in the stock exchange are needed to serve as intermediaries between them.Secondary market does not directly contribute to capital formation.
The company does not receive or pay any money but performs an important function.

They impart liquidity to investment and enhance the marketability of securities.

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The capital market is the market for medium and long term funds. It refers to all the organizations, institutions and instruments that provide long term funds.

The organizations and institutions which constitute the capital market include the new issue market, the stock exchange, the mutual funds, insurance companies, investment banks.

The capital market mainly focuses on meeting long term financial needs of the business sector.

Global Market In Hand

The business enterprise utilizes this market to procure finances for long term investments, such as buying plant ,machinery ,buildings, etc. funds in the capital market are raised by issuing a wide variety of securities which includes :-

• Equity shares or ownership securities
• Debentures or creditor ship securities
• Preference shares or securities having preferential claims
• Other innovative securities which are variant s securities, with new features added to provide a wider choice to investors.

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