What is your share type?

AShare or stockis a financial security that makes theholder one of the owners of the company. Along with the other shareholders you becomeapartial ownerof the company andyour rights will vary according to the type of share owned. Before investing in stocks you should be aware of the rights associated with each type of share and then decide your share type.

Shares are categorized mainly into two groups:
Common Shares
Preference Shares
Common Shares

Most of the people hold common shares in a company. These shares entitle the holder to receive dividends and provides them with voting rights. At the company’s Annual General Meeting they exercise their voting rights and elect the directors who in turn are responsible for appointing the managerial body . Shares may be public or private. Common shares are also called “equities” or ” equity securities”. There are regulatory authorities that approve shares , if the share is a Private share then no approval is required. But if the share is Public they are under the regulation of government securities regulators. According to the trading [between buyers and sellers] the stock prices are determined.

PreferenceShares
Preference shareholdersreceive preferential treatmentinterms of dividend distribution. If a company goes bankruptthe preference shareholdersreceivethe nominal value of their shares ahead of the ordinary shareholders. There are several different types of preference shares availablein the market.

Based on their term or maturitypreferencesharescan be of the following types:Preferred shareswith no fixed maturity dateare a “Straight” or “perpetual” shareand pays the shareholders dividendforever.

Sharesthat have theirmaturity datementioned at the time of issueare called “retractable” or “term” preferred shares.Somesharesthat have their retraction value payable in cashorincommon stock of the same value are called “Soft-retractable” preferred shares. This provides the issuer with the option ofnot paying back in casheither at the time of maturityorin the case of retraction. He can pay an equalvalue of stock instead.

Mostpreference shares are “cumulative” in nature. In case of Cumulative preference sharesif the dividendsare not paidwithin the specified period, they get accumulated until finally paid. Before the company pays off its common shareholders, it shall have to distribute the accumulated dividend to the preference shareholders.

Along with Cumulative preference sharesthere is the “Redeemable” preference share as well. The issuing company can buy back these shareson a specified maturity date.

Stocks may be grouped together according to different sectors, business cycles, and market capitalization of the company.

Before you decide on your share typeyou must analyze your investment objectivesand compare the stocks available with these objectives. There may be several quantifiable measuresthat you thinkareof utmost importancewhen youinvest. You have to decideon your stockbased on the earningsgrowth, relative strength, dividenddistribution, and revenue growth and tax abnormalities if any. Amongthethousands of stocksavailable it is only bystock screening andstockresearch that you can finalize your share type.

Technorati Tags: , ,