It’s not unusual for businesses to possess different types of shares. Each type of company share gives out different rights to their shareholders, such as the rights to capital or dividend and voting power.
Most businesses have one type of share. They are known as Ordinary shares. These shares reflect the ownership o the company and represent the basic voting right of the company. Ordinary shares are normally worth one vote for each share and each share also awards equal rights to the company’s dividends. Ordinary shares also award the right to distribute company assets if the company gets sold or closed down.
The rights linked to ordinary shares are normally explained in the company’s article of association or the shareholder’s agreement.
Deferred shares hold fewer rights compared to ordinary shares and compromise of :
- Shares for which dividends are only to be paid after all the other types of shares have already been paid.
- Shares for which dividends are only to be paid after a certain period, event or date.
- Share that cannot be traded until a specific date – these types of shares are generally given to the company employees to increase their loyalty and increase their commitment to the company.
- Shares which in case of insolvency do not their owners any right up until all the other shareholders have been paid.
Non-voting shares deny their owners any voting rights within the company. This means that the owner of these types of shares is entitled to a part of the company’s assets, but they are not allowed to participate in the company’s general meetings.
Non-voting shares are normally given to the relative of the major shareholders or the company employees. This type of share gives the major shareholders in the company more control.
This type of share allows a company to buy back its shares in the future. The redemption date is normally decided by the company or fixed to a specific date( for example, four years to the date the share was issued). The price of the shares when being bought back is normally the same as its original price.
Company employees are often given redeemable shares. This means the company will get the shares back when the employee leaves. However, the power of redeemable shares is restricted and is subject to particular statutory requirements. For example, the company can only redeem the shares from accumulated profits or proceeds from issuing new shares.
Fractional shares are simply parts of a complete share of stock. When a business issues its stock shares, each investor owns a portion of the total outstanding shares. You can buy fractional shares through a procedure known as dollar-based investing. According to the experts at SoFi Invest, you can begin investing with 5 dollars. The purchase of the shares is based on the amount of money an investor is willing to spend.
Companies normally want different types of shares to attract investors.