Five Important Features of Ordinary Shares

Successful investment in share market requires an understanding of the different characteristics and features of the shares. It is important to learn some basic knowledge about what ordinary shares is, how many types of shares have, what causes share prices to change and many more.

Basically there are two types of shares: ordinary shares and preference shares. In this topic we will focus on the features and rights associated with holding ordinary shares (also known as equity shares).

Ordinary shares are the most common form of shares an investor will encounter in the financial market. It represents a certificate of ownership of a company. Following are the five most important features associated with ordinary shares:

(1) Limited Liability
Ordinary shareholders have limited liability, in other words, their liability is limited to those shares. They cannot be forced to pay anything out of their own money in the event of bankruptcy. They are fully protected against any financial obligations incurred by the organizations.

(2) Liquidation Rights
If a company goes bankrupt and liquidates all its assets, the ordinary shareholders have the right to receive their share of sale proceeds. However they are the last to receive money after the creditors, bondholders and preference shareholders are paid.

(3) Preemptive Rights
If a company plans to issue new shares, existing shareholders have the rights to subscribe to new shares, often at lower prices, before they are issued to the public.

(4) Voting Rights
Ordinary shareholders have the rights to vote in general meeting of the company. Each share carries the right to one vote. Shareholders can exercise control by electing the board members, who will oversee the major decisions and policies implemented by the management.

(5) Dividend Payments
Ordinary shareholders are entitled to a share of the profits in the form of dividend. However the amount of dividend payments is not based on a fixed percentage rate, it is recommended and decided by the board of directors.

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Advantages and Disadvantages of Ordinary Shares
2 comments:
Anonymous 9:35 AM

umm....its helpful but i didn't understand the liquidation rights

Anonymous 12:22 PM

Infact!! i don't see any action, xcercise by the liquidators, in term of winding up the company voluntarily, not by the court order, is only shareholders'll suffer frm loses.