A share is a title issued by a commercial company that represents the value of one of the equal fractions into which its share capital is divided. Possession of shares in a company gives the right to its owner, who receives the name of shareholder, to vote at the shareholders’ meeting of the entity, to receive a proportional part in the distribution of profits and the corresponding equity share in the dissolution of society, among others.
Derived rights and obligations
When a person is a shareholder in a company, they can demand their rights as owner, but this also gives them obligations that they must fulfill:
The most important rights are:
- Participate in meetings and boards of directors of the organization
- Have access to confidential information and the financial situation of the company
- Possibility of selling part or the amount of shares that belong to you
- Receive dividends in relation to the guarantees you own
The most outstanding obligations are that the shareholder has the obligation to pay the price of the shares and will be responsible for the losses and debts of the company –only with the contributed capital.
Difference Between Bonds and Stocks
Stocks are securities just like bonds. The difference between them is that the holder of a company’s bonds or debentures is a creditor of the company. As a creditor, he is entitled, when the agreed term expires, to a refund of the amount disbursed plus accrued interest . Bonds or debentures are considered fixed income investments .
However, the holder of a share owns the company in the proportional part that the invested capital represents when buying that share, and, therefore, assumes a greater risk of depreciation of the investment made if the company does not obtain profits, as well as a higher appreciation of your investment if the company makes a profit.
Types of actions
There are many ways to classify stock types. Next, we explain the most common:
- Ordinary shares. These are the titles that companies issue most frequently, since they give them the possibility of financing themselves to grow and evolve without having to resort to credits or loans to obtain the capital they need to develop their business activity.
When an investor buys a common share, they get the right to vote at shareholders’ meetings. Keep in mind that he may or may not receive dividends, being the decision of the board of directors. In any case, he will receive the compensation from him after all the needs of the company and the compensation of the preferred shareholders are settled.
- Preferred Stock. These types of actions are more complex. They do not confer any share in the company’s capital or right to vote at the shareholders’ meeting. They have priority over common shares in the payment of dividends or upon liquidation and are subordinated to the payment of bonds or obligations and to the obtaining of positive results by the company.
Your return is not guaranteed as it is tied to making a profit. They are a high-risk financial asset.
- Limited voting shares : These are those that only confer the right to vote on certain matters of the company determined in the corresponding share subscription contract. As compensation , these shares are often preferred or entitled to a higher dividend than common shares.