The rights and benefits of a shareholder
Shareholders have the potential to profit from a rising share price and the potential to earn an income from dividend payments. Shareholders also have a range of other rights and benefits. Although, they differ slightly depending on whether you own ordinary shares or preference shares.
What are ordinary shares?
Ordinary shares or ‘common stock’ are the most common type of share. An ordinary share represents part ownership in a company and each share is worth an equal amount of equity. Whilst companies may pay dividends on ordinary shares, they are not required to do so.
What are preference shares?
Unlike ordinary shares preference shares generally provide fixed dividend payments to the owner. In this sense, they provide the owner with ‘preference’ over ordinary shares. This fixed payment comes in the form of an agreed percentage return. It gives the investor certainty as dividend payments are guaranteed unlike with ordinary shares.
Your rights: ordinary shares vs. preference shares
As an ordinary shareholder you are able to
- Participate in annual general meetings and vote on the election of directors to a company’s board
- Access relevant company information such as reports
- Receive dividends (should the company pay them) and participate in dividend reinvestment plans (if offered by the company)
- Participate in corporate actions such as share or rights issues (if offered)
As a preference shareholder you are generally entitled to:
- Priority of being repaid if the company should go out of business
- Fixed dividend amount
However, you generally cannot
- Vote on the election of directors
- Participate in annual general meetings
