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Understanding Shares: An Overview
Shares are a type of security that grants investors partial ownership in a company, along with certain rights and benefits. Here's what you need to know about shares:
Two Main Types of Shares
Ordinary Shares: These securities provide owners with voting rights and the opportunity to participate in the distribution of dividends. The general meeting of shareholders, where decisions are made through voting, is the highest governing body of the company. Each share typically carries one vote, meaning that larger shareholders hold more influence over decision-making.
Preferred Shares: This type of share offers advantages in terms of dividend distribution and priority in case of bankruptcy. Preferred shareholders receive dividends before ordinary shareholders and have a higher claim on company assets during liquidation. However, owners of preferred shares generally do not have voting rights at shareholder meetings.
Reasons for Companies to Issue Shares
Capital Raising: Companies issue shares as a mean to raise capital. The funds generated from the sale of shares can be used to fuel business growth, such as expanding operations, investing in research and development, or bolstering working capital.
Reputation and Image: Issuing shares adds to a company's reputation and enhances its corporate image. It increases the company's visibility, transparency, and attractiveness to potential investors looking to participate in trading activities. To be listed on a stock exchange for trading, a company's shares must first undergo the listing process.
Shares play a vital role in the corporate landscape, enabling investors to become partial owners and enjoy benefits based on the company's performance. Whether ordinary or preferred, shares offer opportunities for participation, dividends, and potential capital appreciation. As an investor, understanding the different types of shares and their implications can help inform your investment decisions.