Stocks are a share within the company’s shares that follow an individual or collective ownership, and shares constitute a percentage of the company’s capital. Stocks are also known as a type of securities issued by governments or companies, based on a fixed interest rate. Another definition of shares is that they are securities of equal value, used in trading, either directly or through the financial markets.
Shares are divided into types that are tradable in stock exchanges; The following is information about it:
Ordinary shares are the most frequently-issued and traded shares in the financial market, and represent private ownership of companies and a percentage of their financial profits. Every investor in common shares has the right to participate in the election of the company’s board of directors; He gets one vote for every share he owns in the company. Ordinary shares contribute in the long term to capital development; By increasing the percentage of financial returns in all investments within the company’s activity, and the value of the returns is often higher than the cost of shares, but this entails some risk; Especially in the event that the company goes bankrupt and becomes liquidate, and then the shareholders do not get the value of their participation in the capital until after the debts are paid with the value of the bonds and preferred shares of their owners.
Preferred shares are shares that constitute a percentage of the company’s ownership, but do not give the right to vote to shareholders, and preferred shares are considered to have guaranteed and fixed profits, unlike ordinary shares with variable profits, and upon liquidation of the company, the shareholder in the preferred stock gets his share before other shareholders, and some investors consider to these shares as a debt owed on the capital.
Preferred shares are distinguished from ordinary shares in that they are distributed over a number of types, namely:
Direct shares (non-cumulative): a type of preferred shares, but it does not have any additional features. The shareholder is entitled to receive the value of the announced returns, and in the event that the company is unable to pay dividends, there are no entitlements to the investor.
Cumulative shares: These are shares that are characterized by the protection of shareholders in the event of financial difficulties or non-payment of dividends, as the value of stock returns accumulates on the company until it is able to pay them.
Participation shares: They give their owners the right to obtain the announced preferred dividends and additional joint profits.
Convertible shares: These are shares that provide the advantage of exchanging preferred shares for ordinary shares at a fixed price called the conversion price.
Recall shares: These are the shares that benefit the company and not the shareholder; In this type of shares, the company has the right to redeem them at the end of their expiration date.
Issuance of shares:
Issuing shares is one of the special functions in joint-stock companies during their establishment, which contributes to helping individual shareholders to participate in the founding capital, or to increase the company’s capital when needed in the future, and there are many reasons associated with the issuance of shares, the most important of which are:
Increasing the company’s own financial liquidity in order to face financial crises or losses.
Financing new projects for business development.
Participation in the capital of competing companies for strategic or investment reasons.
Shareholders, i.e. shareholders in the company, enjoy a set of rights guaranteed in accordance with the law, including:
Obtaining a share of the value of the company’s liquidation, whether it is dissolved or the period of its existence has expired.
Participation in the management of the company and the general and extraordinary meetings of shareholders.
The right to participate in the elections of the Board of Directors through candidacy or voting.
Obtaining a share of the profits distributed during the year, which are determined by the general assembly of shareholders, and are distributed according to each shareholder’s share in the capital.
The right to access all documents and important information in order to follow up on the company’s business and activities.
Each type of shares is characterized by certain characteristics, namely: The characteristics of ordinary shares: they are special features in this type of shares and are divided into the following: The residual claim: is that the shareholders of the ordinary shares obtain their rights to the income and assets of the company at the end of the liquidation process. Limited Liability: It is the possibility of most shareholders losing the value of their participation in investments when the company is unable to invest properly, and in the event of bankruptcy, all shareholders may lose their shares within the company; Which leads to their loss.
Characteristics of preferred shares: They are special features in these shares, and they are divided into the following: Preferred stock dividends are distributed in the same way as ordinary stock dividends. preferred stocks are like bonds; It pays dividends to shareholders based on a prior agreement, with distributions at regular intervals. Some companies pay preferred stock issuance prices before the maturity date. Preferred shares do not entitle corporate shareholders to vote.