A – What is an Ordinary Share?

What is an Ordinary Share?

Common shares are a type of security issued by companies that grant their holders ownership rights over the company. By purchasing common shares, the investor becomes a shareholder and, therefore, participates in the company’s financial results, being able to receive dividends and have the right to vote at shareholder meetings. This category of shares is essential for those who seek to invest in companies and actively participate in their decisions.

Characteristics of Ordinary Shares

Common stock has distinct characteristics that set it apart from other types of stock, such as preferred stock. One of its main attributes is voting rights, which allow shareholders to influence important decisions, such as the election of board members and the approval of mergers and acquisitions. In addition, common stock can offer dividends, although these are not guaranteed and depend on the company’s financial performance.

Rights of Ordinary Shareholders

Ordinary shareholders have rights that go beyond simply receiving dividends. They have the right to participate in general meetings, where they can vote on matters that affect the company. This includes decisions on the distribution of profits, changes to the bylaws and the approval of audits. These rights are essential to ensuring that shareholders have a say in the management of the company

Dividends and Common Shares

Dividends are a crucial part of the return on investment in common stocks. While companies are not required to pay dividends, those with a solid history of profits often distribute a portion of those profits to shareholders. The amount and frequency of dividends can vary, and investors should be aware that a company’s dividend policy may change over time, depending on its financial health and growth strategies.

Risk and Return of Common Shares

Investing in common stocks involves risk, but it also offers the potential for significant returns. The value of stocks can fluctuate based on a variety of factors, including company performance, economic conditions, and market trends. While common stockholders may benefit from increases in stock price and dividends, they are also exposed to the risk of capital loss, especially during periods of market volatility.

How to Buy Common Stock

To purchase common stocks, an investor must open an account with a brokerage firm. Once an account is opened, it is possible to purchase shares through online trading platforms, where the investor can view the performance of the stocks and place buy and sell orders. It is important for investors to conduct careful analysis before purchasing stocks, considering factors such as the financial health of the company and market conditions.

Stock Market and Common Shares

The stock market is the place where common stocks are bought and sold. This market can be divided into primary markets, where shares are first issued, and secondary markets, where previously issued shares are traded among investors. Common stocks are often traded on stock exchanges, where prices are determined by supply and demand, reflecting the perceived value of the company to investors.

Advantages of Investing in Common Stocks

Investing in common stocks can offer several advantages, such as the potential for capital appreciation and the generation of passive income through dividends. In addition, common stockholders have the opportunity to actively participate in the governance of the company, which can be rewarding for those who want to take a more active role in its decisions. Common stocks can also be a good way to diversify an investment portfolio.

Disadvantages of Common Stock

Despite the advantages, investing in common stocks also has disadvantages. The main risk is market volatility, which can lead to significant fluctuations in the stock price. Furthermore, in the event of a company bankruptcy, common stockholders are the last to be paid, after creditors and preferred stockholders. Therefore, it is essential that investors are aware of these risks and consider their risk tolerance before investing in common stocks.