Ordinary Shares
Ordinary shares, also known as common stock, are the common shares of a corporation that are traded on the stock exchange. They represent ownership in the corporation and entitle the holder to vote on certain matters and to receive dividends, if any.
Key features of ordinary shares:
- Ownership: Represent ownership in the corporation and entitle the holder to vote on certain matters.
- Voting rights: Allow holders to vote on company matters, such as electing directors and approving major transactions.
- Dividends: May be paid to shareholders as a distribution of company earnings.
- Shared ownership: Ordinary shares are held by many different shareholders, each with a proportional ownership stake.
- Transferability: Can be traded on the stock exchange like any other security.
Types of ordinary shares:
- Common stock: The general type of ordinary share, with full voting rights and ownership.
- Treasury stock: Shares that are owned by the company itself, rather than by shareholders.
- Founder’s stock: Shares that are reserved for founders or other key employees, often with special rights or privileges.
Examples of ordinary shares:
- Apple Inc. (AAPL)
- Microsoft Corporation (MSFT)
- Tesla Inc. (TSLA)
Advantages:
- Participating ownership: Allows shareholders to have a voice in the company and influence its direction.
- Potential for growth: Can appreciate in value over time, potentially generating returns for investors.
- Access to dividends: May generate passive income through dividend payments.
Disadvantages:
- Risk of loss: Investors can lose money if the company fails or the stock price declines.
- No guaranteed returns: Dividends are not guaranteed and can be changed or discontinued at the company’s discretion.
- Limited control: Shareholders have limited control over company decisions compared to founders or major shareholders.
FAQs
What do you mean by ordinary shares?
Ordinary shares represent ownership in a company and typically give shareholders voting rights and dividends, though dividends are not guaranteed.
What is the difference between ordinary shares and preference shares?
Ordinary shares provide voting rights but have variable dividends, while preference shares offer fixed dividends and priority in case of liquidation but usually no voting rights.
Are ordinary shares a class of shares?
Yes, ordinary shares are a class of shares representing equity ownership in a company.
Is common equity the same as ordinary shares?
Yes, common equity and ordinary shares generally refer to the same type of ownership in a company.
Are ordinary shares equity or liabilities?
Ordinary shares are considered equity, as they represent ownership in the company.
