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What are shares?
Shares are units of ownership in the company tracked individually or collectively and are usually of equal value. Shares are used for trading either directly or through the financial markets. Each share guarantees its holder to get a specific share from the company’s capital and entitles him to an equal claim on the company’s profits.
Shares are divided into two main types:
Ordinary shares which are the most traded in the financial markets since they represent equity ownership in a company. These shares allow the investor to vote and elect the board of directors and each investor is entitled to one vote per share. Ordinary shares have no specific dividend rate. Preferred shares which represent a percentage of the company’s ownership and do not carry voting rights as the ordinary shares. In terms of dividend distribution, the holders are entitled to a guaranteed cash disbursement and have the priority to receive dividends before the common shareholders in case of bankruptcy. Here are some types of the preferred shares:
Non-Cumulative Preferred Shares: The shareholders have no future right to receive the dividends if the company is unable to pay.
Cumulative Preferred Shares: Shares that provide a guarantee of dividend payment to their holders whenever the company faces difficulties to pay the profits or has financial difficulties. In cumulative shares, the dividends are allowed to accumulate until they are paid.
Participating Preferred Shares: Grants the holder of the right to receive fixed dividends and to participate in the additional earnings of the company.
Convertible Preferred Shares: Shares that include an option for the shareholder to convert the preferred shares into a fixed number of ordinary shares according to the conversion rate predetermined in advance.
Pledge Preferred Shares: Shares which are beneficial to the company for a specific period. The company is entitled to redeem them upon the expiry of its validity.
Issuance of shares: The company can issue new shares to its individual and institutional holders when it’s first established. This act is considered to be a mean of raising the startup capital which help the company to finance their business operations and expansion, to confront financial crises or losses, and to participate in the capital of the competing companies.
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