Companies can float around multiple types of shares. What most of us have come face to face with are usually ordinary shares that give you as an investor benefits such as the following:
- A vote in the company.
- Dividends of the company earning.
- Earn over buying and selling the shares.
The share types go beyond the Ordinary shares and they vary on the below elements:
Dividends earned
Owning a share means you are entitled to a dividend that is a percentage of company’s earning. But owing a different class of share may lead to preferential or no dividend scenario.
Company winding up capital share
Similar is the case with the company assets if the company dissolves. The different type of shareholders may or may not receive the company’s capital.
Voting rights
Some shares may give the shareholder extra voting rights while some may keep them devoid of the voting rights. You must always be watchful for these three rights when you buy a share.
Why does a company float different type of share?
As we know the main aim of a company to float shares is to raise capital then why does the need of different type of shares arise? The first reason to have different types of shares is to attract more investors, other reasons can vary like the dividend distribution strategy, employee motivation and reducing the voting powers of shareholders.
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What are different types of shares?
- Ordinary shares
The ordinary shares can vary internally on the basis of dividends or capital returns but they will always give the shareholders the right to vote.
- Deferred ordinary shares
The Deferred ordinary shares are basically the type of shares that will received dividend and capital gains only after the rest all share types have received dividends or shares.
- Non-voting ordinary shares
Quite similar to the ordinary shares these type of shares take away certain set of voting rights from the shareholders.
- Redeemable shares
As the name itself gives it away, the redeemable shares let the company buy back the shares available in market. This way company gets to own majority of shares and does not lose many of its voting rights.
- Preference shares
While distributing the dividends, the preference shareholders are the first to receive the promised dividend amount. A fixed amount is received every year even before the ordinary shareholders receive the dividend amount.
- Cumulative preference shares
If due to some reasons company is not able to pay the dividends, this set of shareholders are entitled to receive a cumulative amount of dividend in the next pay cycle.
- Redeemable preference shares
The shareholders are the preferred ones when the dividend is to be paid and they have any option to let the company buy back the shares they hold.
So, next time when you plan to buy a share, the technicalities will not scare you away. Henceforth, now have a complete idea of the list of shares available in the market as well as the option to view world indices live to help you make the right choice whenever you buy a share.
Featured image via Pixabay
