Shares represent ownership in the company, as ach shareholder, is deemed owner. This type of shares, as referred to in the Company law, are equity shares or “ordinary shares”. They are given this name, to distinguish them from other shares. There are many types of shares, however, we will focus on “Equity Shares” and “Preference Shares”. The holders of equity shares are the real owners of the company, and the amount of shares held by them represents the portion of their ownership. Equity shareholders have some privileges, such as getting voting rights at the general meetings, appointing or removing directors and auditors, getting profits and the more the profit, the more are dividends. This does not mean that they will get the whole profit of the year, but the residual profit, which remains after paying all expenses and liabilities.
On the other hand, preference shares, as the name indicates, gets precedence over equity shares on matters like distribution of dividends at a fixed rate and repayment of capital in the event of liquidation. The preference shareholders are deemed owners of the company like equity shareholders, however, they do not have voting rights except on matters which affect their rights like resolution or winding up of the company, or reduction of the capital. There are many types of preference shares, as participating on non-participating preference shares, convertible and non-convertible preference shares, cumulative and non-cumulative preference shares. Herein, there are variations.
Comparing the two types, we could say, equity shares cannot be converted into preference shares, whereas, preference shares could be converted into equity shares. Equity shares are irredeemable and preference shares are redeemable. The major difference is the ‘right to vote’, as equity shares carry this right and preference shares do not, generally, carry such rights. The rate of dividend is consistent for preference shares, while the rate of equity dividend depends on the amount of profit earned in the financial year and therefore it is changeable. Based on above, if anyone wants to invest in equity shares or preference shares he can do.
One thing to remember while investing is to purchase when the market is down and sell when the market is up. Another point, try to go for a long-term investment as it will give good returns in longer periods. The best form of investment in shares, could be mutual funds as the risk is comparatively less than individual stocks. Do not recklessly believe on any good advice, because some investments could give high returns, but they are the riskiest, so think twice before you opt to invest in stock market. Better, contact a broker to help in purchasing securities listed on the Stock Exchange and buying from Secondary Market. It could be a little bit expensive as you pay brokerage charges. But, brokers will help in opening accounts and completing the legal formalities. This, among others, could give more protection to potential
investors.
-AfricaNewasAnalysis