Shares and Dividends • Topic 1 of 3

Concept of Shares

What are shares? A share represents a unit of ownership in a company. When a company needs to raise money, it divides its capital into small units called shares. People who buy these shares become shareholders (partial owners) of the company.

Key terms related to shares:

Term	Meaning
Face Value (FV)	The original value of a share printed on the certificate. Also called Nominal Value or Par Value. Typically ₹10, ₹25, ₹100 etc.
Market Value (MV)	The price at which a share is traded in the stock market. Can be higher (premium) or lower (discount) than face value.
Share Capital	Total value of all shares issued by a company.
Initial Public Offering (IPO)	The first time a company sells its shares to the public.

Types of shares based on market value:

At par: MV = FV (selling at face value)
At premium: MV > FV (selling above face value)
At discount: MV < FV (selling below face value)

Real-life analogy: Think of a pizza that costs ₹100 (face value). If people really want the pizza, they might pay ₹120 for it (premium). If no one wants it, they might pay only ₹80 (discount). Whether you pay ₹80, ₹100, or ₹120, the pizza is still the same pizza — just like a share represents the same ownership regardless of what you paid for it!

┌─────────────────────────────────────────────────────────────┐
│                    CONCEPT OF SHARES - VISUAL                │
└─────────────────────────────────────────────────────────────┘

HOW A COMPANY RAISES MONEY THROUGH SHARES:

    Company needs ₹10,00,000
              │
              ▼
    Divides into 10,000 shares
    Face Value = ₹100 each
              │
              ▼
    ┌─────────────────────────────────────────┐
    │  Share 1  │  Share 2  │  Share 3  │ ... │
    │   ₹100    │   ₹100    │   ₹100    │     │
    └─────────────────────────────────────────┘
              │
              ▼
    Investors buy shares → Company gets money
    Investors become SHAREHOLDERS (owners)


SHARE CERTIFICATE (Visual representation):

    ┌─────────────────────────────────────────────┐
    │                                             │
    │         SHARE CERTIFICATE                   │
    │                                             │
    │   Company Name: ABC Corporation             │
    │   Shareholder:  Ms. Meera Sharma            │
    │   Number of Shares:  100                    │
    │   Face Value per Share:  ₹10                │
    │   Total Value:  ₹1,000                      │
    │                                             │
    │   Certificate No: SH-2024-001               │
    │                                             │
    └─────────────────────────────────────────────┘


FACE VALUE vs MARKET VALUE:

    Share of XYZ Ltd.
    
    ┌─────────────────────────────────────────────┐
    │                                             │
    │   FACE VALUE = ₹10                          │
    │   (Printed on certificate)                  │
    │                                             │
    │   But in stock market:                      │
    │                                             │
    │   ┌─────────┐    ┌─────────┐    ┌─────────┐│
    │   │  AT PAR │    │ PREMIUM │    │DISCOUNT ││
    │   │  MV=₹10 │    │  MV=₹15 │    │  MV=₹8  ││
    │   └─────────┘    └─────────┘    └─────────┘│
    │                                             │
    └─────────────────────────────────────────────┘


KEY RELATIONSHIPS:

    Premium Amount = Market Value - Face Value
    Discount Amount = Face Value - Market Value
    
    Example: FV=₹100, MV=₹120 → Premium = ₹20
    Example: FV=₹100, MV=₹90  → Discount = ₹10

Solved Examples

Worked Example

A company has issued 50,000 shares of face value ₹10 each. Calculate the total share capital of the company.

Solution

Step 1: Number of shares = 50,000
Step 2: Face value per share = ₹10
Step 3: Total share capital = Number of shares × Face value
Step 4: = 50,000 × 10 = ₹5,00,000

Answer: ₹5,00,000

Worked Example

A person buys 200 shares of a company with face value ₹25 each. If the market value is ₹40 per share, how much money does he pay?

Solution

Step 1: Number of shares = 200
Step 2: Market value per share = ₹40
Step 3: Total amount paid = 200 × 40 = ₹8,000

Answer: ₹8,000

Worked Example

The share capital of a company is ₹20,00,000. If the face value of each share is ₹100, how many shares has the company issued?

Solution

Step 1: Total share capital = ₹20,00,000
Step 2: Face value per share = ₹100
Step 3: Number of shares = Total share capital ÷ Face value
Step 4: = 20,00,000 ÷ 100 = 20,000 shares

Answer: 20,000 shares

Key Points

A share represents a unit of ownership in a company
Face Value (FV) = original/nominal value printed on the share
Market Value (MV) = current trading price in the stock market
Share Capital = Number of shares × Face Value
If MV > FV, share is at premium; if MV < FV, share is at discount
Buying shares makes you a shareholder (partial owner)

Quick Check — 4 MCQs

Tap an option to check your answer0 / 4

Q1.The value printed on a share is its:

Explanation: Face/nominal value.

Q2.The price at which a share is actually traded is the:

Explanation: Market value.

Q3.If the market value is greater than the face value, the share is at a:

Explanation: MV $>$ FV $\Rightarrow$ premium.

Q4.If MV $=$ FV, the share is said to be at:

Explanation: At par.

Practice more MCQs → 📝 Assignment · 35 marks