Types of Shares

Everything You Need To Know About Types of Shares

Regardless of the shares you buy, including the BMW shares, you can rest assured that they fall under a certain type. However, before the categorization, they fall under one roof, and that’s the shares category. Regardless of the type, the share entitles you to a certain amount of loss or profit that the company makes every financial year. It is also important to note that every share of a certain company has an equal value in reference to its capital. The only thing that makes the shareholders get different claims is the fact that some have more shares than others. That said and done, let’s dive into various types of shares.

1. Preference Share Capital

The name says it all since these shares are quite preferential when it comes to certain events. For instance, when a need to liquidate a company arises, these shareholders get paid out before the other shareholders. Nonetheless, they only get paid once the creditors have all the debts with the company settled. However, that privilege takes away their right to vote. These preference shares are further subdivided into other categories, including the following:

Redeemable preference shares: As far as these shares are concerned, the company might repay them before or after a certain period of time 

Irredeemable preference shares: As much as these shares are repayable, that will only happen when winding up. Don’t expect a redemption arrangement, though.

Convertible preference share: It is possible to convert these shares into equity ones within a particular time

Non-convertible preference shares: You are not at liberty to convert these shares into equity shares even after a certain period of time.

Participating preference shares: The shareholder is guaranteed a dividend fixed rate. They also receive surplus profit as well.

Non-participating preference shares: Unlike their participating counterparts, the dividend fixed rate isn’t guaranteed, and they don’t get surplus profit.

Cumulative preference shares: The shareholders receive any arrear in subsequent years. Even in the event that the profit is inadequate, their owners don’t incur any loss either. Last but not least, they are guaranteed a dividend fixed rate.

Non-accumulative preference shares: This is the opposite of cumulative preference shares. Therefore, if there is inadequate profit, these shareholders don’t get to pocket anything. At the same time, there is no guarantee on the dividend fixed rate.

2. Equity Shares

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Besides the preference share capital, one may also invest in equity shares. This is a term used interchangeably with ordinary shares. After all, they are also quite common and comes with several benefits. For instance, their shareholders have voting rights whenever it becomes necessary. On top of that, they will receive their dividends at the end of the day. Besides that, their value per unit is equal. You get to receive them at face value, not forgetting that you are at liberty to trade them in the stock exchange.

Conclusion

After reading this piece, it is quite clear that not all shares are similar regarding what to expect as a shareholder. Do you want voting rights? Would you prefer to the among the first people to be paid in case of liquefication of that company? These are some of the questions you should think about when investing in shares so that you buy the ones that suit your needs perfectly.

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