When a company becomes public, that is, acquires the status of a public company, it puts up for sale its shares. At the same time, these securities are divided into several types. This article will focus on the most affordable of them.
Ordinary shares
This term is used to mean a security that helps to attract investment in the company and at the same time gives shareholders certain powers. This means that one who has such papers has the right to vote at general meetings. It follows that ordinary shares are one of the key tools to control the management of the company.
It is worth knowing that when applying for the right to income, these securities are presented last. This principle is also relevant in the case of assets requirements during liquidation.
Moreover, according to the legislation, issuers of ordinary shares are required to comply with the established set of rules. The law also establishes some restrictions for those who have the status of a holder of a security.
In addition to ordinary, there are registered shares. Their distinguishing feature is the fact that they are issued exclusively to a specific person and cannot be donated or sold. Accordingly, only the original owner can receive income on them. You cannot change the owner of such securities.
Face value of shares
An ordinary share may have two types of value: fixed and nominal. But for those who invest in an enterprise, this terminology is not relevant. This separation is used exclusively by accounting. The original idea was that the nominal value was an indicator of the value of the company's funds. Therefore, it is precisely the sum of the nominal value of all shares issued by the company that is the authorized capital of the enterprise. In this case, ordinary shares have the same price.
Book value
This indicator is defined as the authorized value of assets per share. To establish this value, you need to add up three accounts of owners of ordinary shares that are on the balance sheet (retained earnings, nominal value and Reserve capital). Any intangible assets must be subtracted from the amount received and divided by the number of shares in circulation.
Receive book value it is extremely difficult for an investor in the form of real money. But he can see what assets are behind each share. The only opportunity for profit according to this rating system is the voluntary liquidation of the corporation. If the investor purchased ordinary shares at a price that was significantly lower than the balance sheet, then he can get a tangible profit.
Voting right
Those who are focused on the acquisition of ordinary shares should know what they can count on both in the course of the company’s activity and in the event of its liquidation.
The first right of the shareholder is the opportunity to use his vote at the general meeting of shareholders. If we take into account Russia, then in the framework of this country, this rule applies: one share gives one vote. But it is worth noting that this approach is not always used.
Receiving dividends
The second thing a shareholder can count on is dividends on ordinary shares. You can get them if the company has a profit. In most cases, dividends are paid in cash. But another option is also possible - the property form, company bonds and shares.
Dividends are paid according to the shareholder’s participation in the equity of the company.Moreover, the board of directors may affect the payment, and not always positively. Moreover, holders of ordinary shares receive their funds only after payments are made to holders preferred shares.
What information about dividends worth knowing
As described above, the board of directors has the right to decide in favor of the payment of dividends to holders of ordinary shares. With the same success, the management of the company may refuse to dividends to shareholders, even if the company has a profit and a good one.
But they are obliged to pay interest to holders of securities. In order to, as a shareholder, competently approach the dividend payment process, you need to know about the following stages:
- Payout Announcement. This is the number when the board of directors officially announces that dividends will be paid.
- Closing date for shareholder registries. We are talking about the day in which the list of shareholders entitled to receive dividends is fixed. But this opportunity is available to holders of securities having this status at the time of closing the registry. Accordingly, if shares were purchased after the closing date, then dividends on them are not laid.
- Date without dividends. This is the number after which two business days remain until the shareholders register is closed. For those shares that were bought during this period of time, dividends are also not paid. This rule is explained quite simply: dividends on ordinary shares are calculated within three days before the registry closes.
- Date of payment. This is the number of actual dividend payments to shareholders.
Given the fact that many investors focus on the dividend policy of the company, changing the size of payments on shares can affect the market price of the company much more than the level of profit of the organization.
Liquidation Compensation
The shareholder also has the right to a certain part of the property of the enterprise, but only in proportion to the share of property that belongs to him, and only after the organization is closed.
But it is important to understand that during the liquidation of a company, the cost of ordinary shares, as well as the fact of owning them, gives the shareholder significantly less advantages in comparison with bondholders, owners of preferred shares and creditors. This means that there is a risk of being left without decent compensation if the assets of the company during its liquidation are enough only for payments to more privileged investors.
Merger Rights
If the Board of Directors decided on the subsequent company merger or its absorption, then investors who have securities of this company are entitled to receive compensation. Usually it comes down to the repurchase of ordinary shares or the issuance of securities of a new company.
The shareholder also has a liquidity right. We are talking about the possibility of selling shares through a private transaction or in open bidding, and at any time.
Stock circulation
A new issue of ordinary shares is placed on the primary market. For this, a public initial offer is used. If necessary, you can use the services of professional intermediaries. These can be investment funds and banks, as well as brokerage companies. It is important to understand the fact that the funds received from public trading are used to form the company's own capital.
But if we take into account the sale and purchase of ordinary shares, it is worth noting that the vast majority of transactions in these securities are in the secondary market. The explanation is quite simple: it is such sales that allow you to make an unlimited number of transactions on this type of shares.
The secondary market itself, in turn, can be divided into two key areas: over-the-counter and exchange-based.
To carry out speculative operations on the exchange market, the stock exchange trading platform is used. But not every company can take this opportunity. The fact is that exchanges have quite stringent requirements for subsequent listing.
Listing should be understood as the process of including shares in the list of traded securities. Even if the company was initially able to fulfill the requirements of the exchange, but after allowing a deviation from them, the securities are excluded from the category of traded.
As for the OTC market, this definition should be understood as the place where the shares of those companies are traded that for various reasons do not have the opportunity to be listed.
Priority Rights
In this case, we are talking about the privilege of shareholders, which consists in the ability to maintain a constant percentage of shares in the volume of securities issued. Such an opportunity exists due to the fact that shareholders can purchase shares of a company in the first place.
But such preemptive rights are determined by the charter of not every company. However, if this clause is spelled out, then the shareholder owning, say, 15% of the shares can buy another 15% when new securities are put into circulation. As a rule, a certificate is issued to the holders of shares by the company, giving the right to purchase a certain percentage of securities. The shareholder can take advantage of this opportunity, and may resell it to a third party.
Obviously, ordinary shares are an integral part of the development and activities of any public company. Moreover, such securities, if used properly, can bring tangible benefits to shareholders.
