A share represents a part of the capital of a corporation. Corporations divide it's capital into shares. Thus, a share represents an indivisible unit of the capital of a corporation.
There are several kinds of shares, most important are: <ol><li>Ordinary shares</li> <li>Preference shares.</li></ol>
Ordinary shares are the most common type of share. Ordinary shares give their holders the following rights:
- Right to receive dividends, only after dividends on preference shares where paid. In case of bankruptcy, bondholders, creditors and preference shareholders will have preference over ordinary shareholders. Dividends profits that where not reinvested. When the corporation distributes dividends, shareholders receive a part of them. But ordinary shares receive dividends only if dividends are available, after dividends on preference shares where paid. That is, when dividends are paid, preference shares have preference over ordinary shares.
- Ondinary shares give their owners the right to vote on some matters like electing the board of directors. The share of votes is proportional to the share of ordinary shares. The large number of small shareholder makes them difficult to organize. This is usually why only the biggest investors have some influence on important decisions. Usually, one shares gives one vote on some matters, like electing the board of directors.
- <strong>In case of bankruptcy</strong>: Those who first are paid are bondholders, creditors and preference shareholders, only if there are funds remaining, ordinary shareholders will be paid.
Corporation shares are usually called “A” or “B”, and not “ordinary” and “preference”. That is why, investors should know what classes are they buying.