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The Main Types of Existing Shares

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The Main Types of Existing Shares.

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There are two general types of shares: common shares and privileged shares.

Ordinary shares. Every time people mention the word shares, they speak about this type of share. Common shares gives a shareholder the right to receive a share of profits and makes it a co-owner of a company with voting rights. In spite of the fact that ordinary shares are one of the most profitable types of investments, they can also be very risky. For example, if a company goes bankrupt, holders of this type of share hardly receive any compensation, in contrast to lenders, bondholders and preferred share owners.

Preference shares. This type of share differs from ordinary shares in several ways. These shares don’t give shareholders the right to vote (although there are exceptions; it depends on the company), guarantee dividends, can be withdrawn at any time and grant advantages in the liquidation process.

The name of this type of share speaks for itself. In spite of the fact that the list above doesn’t look promising, these shares have certain privileges. If a company liquidates, preference share owners receive their money before ordinary shareholders (but after holders of bonds). It is also important to remember that holders of these shares with a guarantee receive fixed dividends, while owners of ordinary shares may not receive any dividends at all, or receive volatile dividends. However, it is necessary to pay for the above-mentioned privileges. As a rule, preference shares don’t grant the right to vote at meetings of shareholders. In addition, a company has the right to withdraw from a shareholder his preference shares without explanation. Since preference shares give a guarantee and are less risky, it can be seen as an average between bonds and common shares.