A Share or stock is a financial security that makes the holder one of the owners of the company.
Along with the other shareholders you become a partial owner of the company and your rights will vary according to the type of share owned.
Before investing in stocks you should be aware of the rights associated with each type of share and then decide your share type.
Shares are categorized mainly into two groups:
– Common Shares
– Preference Shares
Common SharesMost of the people hold common shares in a company. These shares entitle the holder to receive dividends and provides them with voting rights.
At the company’s Annual General Meeting they exercise their voting rights and elect the directors who in turn are responsible for appointing the managerial body.
Shares may be public or private. Common shares are also called equities or equity securities. There are regulatory authorities that approve shares, if the share is a Private share then no approval is required.
But if the share is Public they are under the regulation of government securities regulators. According to the trading between buyers and sellers, the stock prices are determined.
Preference Shares Preference shareholders receive preferential treatment in terms of dividend distribution.
If a company goes bankrupt the preference shareholders receive the nominal value of their shares ahead of the ordinary shareholders. There are several different types of preference shares available in the market.
Based on their term or maturity preference shares can be of the following types: Preferred shares with no fixed maturity date are a Straight or perpetual share and pays the shareholders dividend forever.
Shares that have their maturity date mentioned at the time of issue are called retractable or term preferred shares.
Some shares that have their retraction value payable in cash or in the common stock of the same value are called Soft-retractable preferred shares.
This provides the issuer with the option of not paying back in cash either at the time of maturity or in the case of retraction. He can pay an equal value of the stock instead.
Most preference shares are cumulative in nature. In case of Cumulative preference shares if the dividends are not paid within the specified period, they get accumulated until finally paid.
Before the company pays off its common shareholders, it shall have to distribute the accumulated dividend to the preference shareholders.
Along with Cumulative preference shares there is the Redeemable preference share as well. The issuing company can buy back these shares on a specified maturity date.
Stocks may be grouped together according to different sectors, business cycles, and market capitalization of the company.
Before you decide on your share type you must analyze your investment objectives and compare the stocks available with these objectives.
There may be several quantifiable measures that you think are of the utmost importance when you invest. You have to decide on your stock based on the earnings growth, relative strength, dividend distribution, and revenue growth, and tax abnormalities if any.
Among the thousands of stocks available, it is only by stock screening and stock research that you can finalize your share type.