Ordinary Shares
Contents
Demystifying Ordinary Shares: Everything You Need to Know
Unraveling the intricacies of stock market investments often leads to the exploration of various types of shares, each with its own set of characteristics and implications. Among these, ordinary shares, also known as common shares, stand as a fundamental component of stock ownership. In this comprehensive guide, we delve into the realm of ordinary shares, their significance in corporate ownership, shareholder rights, and the value they bring to investors.
Understanding Ordinary Shares
Ordinary shares represent ownership stakes in corporations, granting shareholders the right to participate in key decision-making processes through voting at shareholder meetings. While ownership of ordinary shares does not guarantee dividends, shareholders may receive a portion of the company's profits if dividends are declared by the board of directors.
The Rights of Ordinary Shareholders
Ordinary shareholders hold the right to residual profits of a corporation, entitling them to dividends after preferred shareholders have been compensated. However, in the absence of available profits, ordinary shareholders may not receive dividends. Moreover, in the event of a company's bankruptcy, ordinary shareholders stand last in line, akin to unsecured creditors, for the distribution of remaining assets.
The Advantages of Ordinary Shareholders
Despite bearing greater financial risk compared to preferred shareholders, ordinary shareholders stand to gain substantial rewards, particularly during periods of significant company profitability or acquisition. With the potential for higher returns, ordinary shareholders play a vital role in driving investment decisions and contributing to the growth of the company.
The Value of Ordinary Shares
While ordinary shares may have a nominal par value, their market price is determined by various factors, including market sentiment, the financial performance of the company, and overall investor demand. The market value of ordinary shares often far exceeds their nominal value, exemplified by renowned companies like Berkshire Hathaway Inc., whose ordinary shares command staggering market prices.