There are countless investment options. For example, you can invest in bonds, currencies, real estate, options, warrants, etc. However, one option is used very often: investing in shares. This article takes a closer look at this investment option and discusses no fewer than 5 types of shares.
When you buy a share, you are in fact buying part of the company or organization that issued the share. As a shareholder you have influence on the policy there and it gives you the right to vote at shareholder meetings. The price (or value) of a share can fluctuate greatly (volatility) and is related to the profit (expectation) of the company. The price is determined by supply and demand on the stock exchange. In the Netherlands this is the Amsterdam stock exchange or Euronext Amsterdam. The price value is the value for which a share is traded on the stock exchange at a specific time. However, in addition to the price value, a share always also has a nominal value. This is the value for which the share was ever issued and indicates what part the share has in the assets of the company. As a shareholder you are also entitled to a share of the profit made . In most cases, only a small percentage of profits are distributed to shareholders and the rest is reinvested in the company. The percentage of profit that is actually paid out to shareholders is called the payout ratio and the profit distribution itself is called dividend . Sometimes a company offers a so-called optional dividend, where you can cash out the profit distribution or receive it in new shares (stock dividend).
Types of shares
There are various types of shares, which mainly differ in the degree of influence of the shareholder within the company. The payout ratios also differ considerably. In general, five types of shares are distinguished:
- Registered shares
- Bearer shares
- Preferred stock
- Priority shares
Private Limited Companies (BVs) can issue registered shares. Registered shares state (as the name suggests) the name of the owner. In BVs that issue such shares, the shareholders are the partners. This usually does not involve large numbers of shareholders.
Unlike registered shares, a bearer share does not contain the name of the owner; it is nameless. Public Limited Companies (NVs) can issue bearer shares. For example, shares listed on the stock exchange are bearer shares.
Owners of preferred stock are the first to share in the company’s profits. Preference shares have priority over ordinary shares in the event of profit distribution or bankruptcy of a company. There are also cumulative preference shares, in which the right to profit distribution is saved. If a company cannot or does not want to distribute profits in a certain year, the owners of preference shares are responsible for this distribution.
Priority shares are usually owned by the founders of an organization or company or their heirs. In some cases, a few directors own such shares and in exceptional cases also a number of very large shareholders. Priority shares give the holder some exclusive rights, giving them a lot of influence on the policy within the company. An example of a right that may be associated with the ownership of priority shares is the right to appoint new directors.
In fact, depositary receipts are not real shares, but because they are traded as if they were, they were often considered one of five types of shares. They are pieces that replace the original shares, for example because they are not very suitable for trading. For example, registered shares can be converted into bearer shares by means of a certificate, so that they can be traded on the stock exchange. Usually the original shares are placed with an administration office, which then issues the certificates. Owners of certificates have no influence whatsoever on company policy.