A share—also referred to as stock—represents a portion of the company that is owned by shareholders in exchange for their financial support and contributions. These shares can either be fully or partially paid up and signify that a shareholder has partial ownership of the company, with shareholders ranging from individuals, companies, or limited liability partnerships.
What Are the Different Types of Shares?
The following are the different types of shares that shareholders can acquire:
- Ordinary Shares: This is the most common type of shares. These grant shareholders voting rights but not rights to receive or demand any dividends. Those who own ordinary shares also receive less dividends compared to those who own other types of shares like preference shares. Depending on the company, ordinary shares can also be divided into different classes, with different benefits attached to each.
- Preference Shares: The preferential shares grant shareholders the right to fixed dividends, a return of capital during the company’s liquidation, as well as priority to dividends over those with ordinary shares.
- Redeemable Preference Shares: These are shares that the company can buy back from the shareholder after a certain period of time or under certain conditions, allowing the company to have more flexibility when it comes to managing its capital structure.
- Convertible Preference Shares: Convertible preference shares often give the shareholder rights to a fixed dividend for a certain period of time. Once this time has passed, the company or shareholder may choose to convert these preference shares into ordinary shares, which will allow the investor to benefit from potential capital gains and purchase ordinary shares at a cheaper price, or proceed with the preference shares.
- Treasury Shares: Treasury shares are the ordinary shares that the company retrieved from shareholders. The company is listed as the owner of these shares, but it’s not allowed to use these shares to vote in meetings or to demand any dividends. The total number of treasury shares that the company may own should not exceed 10% of the total number of ordinary shares issued. Any excess will have to be canceled or disposed of within 6 months.
What’s the Difference Between Preference and Ordinary Shares?
Preference or Ordinary: Which One is Better?
Both types of shares have their advantages, and the decision of which one to get will ultimately depend on what you, as a prospective shareholder, wish to gain from the company, as well as the role you wish to have. Possible events in the future, such as company liquidation and conversion of shares, should also be considered when choosing which one to get.