Corporations divide it’s capital into shares. Thus, a share represents an indivisible unit of the capital of a corporation.
There are several kinds of shares, most important are:
- Ordinary shares
- Preference shares.
Ordinary shares are the most common type of share. Ordinary shares give their holders the following rights:
- Right to dividends: dividends are not reinvested profits. When the corporation distributes dividends, shareholders receive a part of them. But ordinary shares receive dividends only if dividends are available, after dividends on preference shares where paid. That is, when dividends are paid, preference shares have preference over ordinary shares.
- Participation at general meetings: ordinary shares give the right to its owner to vote at general meetings of the corporation. Usually, one shares gives one vote on some matters, like electing the board of directors.
- In case of bankruptcy: Those who first are paid are bondholders, creditors and preference shareholders, only if there are funds remaining, ordinary shareholders will be paid.
Corporation shares are usually called “A” or “B”, and not “ordinary” and “preference”. That is why, investors should know what classes are they buying.
