This is part of a series of articles sponsored by NIC bank. NIC will be having a rights issue starting 27th August. Read more about their rights issue here.
Simply put, a share is a unit of ownership. A share of the ownership. If you own 2 out of 4 shares of a company, you own 50% of the company. Holders of shares are called shareholders.
There are two main types of shares, ordinary shares and preference shares. Ordinary shareholders possess different characteristics to preference shareholders:
- Ordinary shareholders have voting rights while preference shareholders do not have any voting rights.
- Ordinary shareholders may or may not receive dividends while preference shareholders have a fixed dividend amount that is paid to them. Ordinary shareholders can thereby receive even higher dividends than preference shareholders or none at all.
- Ordinary shares are tradable (if the firm is listed on a stock exchange) while preference shares are not (necessarily) tradable (unless the preference shares are specifically listed on a stock exchange).
The dividend an ordinary shareholder gets is their compensation for their investment.
Normally, each share held translates to a vote. Therefore if you have 10 shares out of 100 shares, your vote accounts for 10% of the total vote.