Securities play an important role in the economic development of the country. Due to the fragmentation of small capitals, there were some factors constraining the growth of production. Using special tools today, these funds are easily accumulated and invested in the capital of various companies.
The most famous of them are stocks and bonds. Enterprises are increasing the scale of production, improving the quality of products thanks to investor funds. Shareholders receive income for organizations using their capital.
Considering the types of stocks and bonds, you can better understand their essence. These two tools have a different operating principle. But both of these species are actively involved in the processes. securities market.
History of occurrence
Considering the varieties of stocks and other securities, one should turn to the sources of their occurrence. In the era of industrial development, large enterprises did not yet exist.
Significant capital injections are required to create truly large-scale production. So joint-stock companies began to form, the capital of which consisted of many small investments of various people.
To fix how much a particular person contributed, shares were issued. The world's first company of this type, Ost-Indus, issued the first securities of its kind in 1606. These types of valuable shares at that time attracted many investors. After all, people in the event of bankruptcy did not respond with their property.
Accordingly, the share that they contributed to society, they were paid remuneration. First in kind, and then money. These principles are relevant today.
Stocks in the past and now
Considering the types of securities, such as stocks and bonds, it is necessary to distinguish two main forms that existed throughout the history of their functioning. These are cash and non-documentary types of securities. Stocks in the past were tangible. They indicated all the necessary information about the rights of the owner.
Only companies with a special license had the right to print such types of shares for a joint stock company. The forms had several degrees of protection. The name of the company, type of security, number, date of issue, dividend payment, face value, and also other information, if necessary, were indicated on beautifully executed paper.
Today, most securities are issued electronically. They are easier to handle and control. The right to own the main types of uncertificated shares is registered in the register of a joint-stock company.
The right to sell securities
According to the right to sell securities distinguish between registered and bearer types of shares. If the surname and name of the owner are indicated in the register, such a variation is more difficult to implement. These are registered shares. In this case, the owner will be able to sell his securities only by notifying the company first. Most often, such species during emission have a large denomination.
Representative shares are anonymous. Their denomination is small. Therefore, selling them is quite simple. For this, it will not be necessary to notify other shareholders. In this, the securities represented are like money. After all, if desired, they can be exchanged for goods or services corresponding to their value.
The mechanism of operation of various securities
The most common securities today are bonds and stocks. They have a number of features, differences.
By definition, a stock is a security that gives the right to vote to its owner in the process of managing the company.The greater the share of the participant in the total capital of the company, the stronger it affects the decisions on the work of the enterprise. The higher the face value, the greater the percentage of dividends received by the owner.
A bond is issued by a company or government for temporary use of investor capital. Funds that are poured into the total capital must be returned in a timely manner. In addition to the invested funds, the owner of the bonds at the end of their term also receives a percentage. This is a fee for using his financial resources.
By the law of managing the company’s activities, the considered tools also vary. Therefore, stocks are shown in the balance sheet as equity, and bonds as borrowed. Before the acquisition, the investor evaluates the benefits that these types of securities provide. Stocks, bonds have their own characteristics.
Comparison of bonds and stocks
In order to decide which type of securities is preferable for an investor, you should compare these two varieties by the main parameters. In addition to the management right and the way of displaying in accounting, the considered tools are characterized by different profitability and, as a result, risks.
Different types of stocks and bonds are similar in one. Dividend yield is always higher than interest on borrowed funds. Sometimes they are even incommensurable.
But the risk of not making a profit with the shareholders is higher. In the event of bankruptcy, the debt on the bonds is repaid first. Although both of these types of securities are risky. Here the rule applies: the higher the probability of non-return of funds, the greater the possible profit for investors.
The nature of dividend payment
In addition to the type of securities, many factors influence the decision of the investor. If he decided to take part in the management of the company, he should know that in this case they’ll fit ordinary shares and varieties, as a privileged type, resemble bonds in principle. Therefore, if a shareholder is more interested in the fixed income of his investments, this type of securities should be preferred.
Ordinary shares do not guarantee the payment of dividends to their owners. According to the decision of the meeting of the founders, net profit can be completely directed towards improving production technology and upgrading equipment. Types of ordinary shares are similar in one. They provide an opportunity to take part in making decisions about the future work of the company.
But the privileged type guarantees a stable income to the investor in the agreed amount. But in the case of a large net profit, dividends on ordinary securities can pay much higher. In this case preference shares lose. But in case of bankruptcy, the company begins to pay them.
Distribution Type
The types of shares of a joint stock company by the method of their distribution are of two types. This defines the name of the organization itself.
A closed joint-stock company distributes the securities presented to a predetermined circle of persons. Most often these are the founders and employees of the enterprise.
If the company freely distributes its securities, the nominal value of which is reflected in equity, it is an open joint-stock company. Today, the number of such enterprises is much higher than before.
In order to buy or sell such shares, the owner must not inform the remaining members of the company. Most often these are unnamed securities, the face value of which is rather small.
Owner Rights
The main types of shares listed above give their holder a number of rights. The main one is making a profit in the form of dividends. Almost always, the holder of such securities has a vote in deciding on the management of the company.
In the event of its reorganization, the holder of shares may claim a part of the property in proportion to the par value of its securities.The owner has a preemptive right to purchase in the event of a re-issue. This right is also proportional to the share that the person contributed to the authorized capital. Other benefits may be specified in the articles of association.
Income
Different types of stocks bring income to their owners. It can be of two types. The owner receives the first of these in the form of dividends at the end of the current period. This type of income depends on the amount of net profit, as well as the decision of the owners of the controlling interest to send part of the funds to the development of production.
Sometimes even a significantly increased income does not guarantee an increase in payments to shareholders. However, the more stable the company, the more expensive the owner can sell his securities. This is the second type of profit.
The market value of a share may significantly exceed the face value. The investment attractiveness of the enterprise depends on this. The higher it is, the more likely it is to attract borrowed capital for the development of production and the modernization of equipment. In order to increase its rating, a company should increase as far as possible the payment of dividends to its shareholders. Thus, the securities presented will be in demand in the financial market.
Having considered the main types of stocks, you can understand their benefits and risks. Depending on their type, the owner receives a vote in the management of the company or just a fixed income. So, it will not be difficult enough to decide which type is more suitable for the investor and will bring him the expected benefits.
