November 13, 2009

Equities – What’s it all about?


EQUITIES refer to an investment in the ownership of a company. Typically an equity stake comes in the form of shares or stocks, either term can be used. The shares are at an initial face or nominal value, but dependant on the company’s performance can increase over time. There are two main classes of shares, the most common of which are, no pun intended, Common or Ordinary shares and Preference shares.{{more}}

Common shareholders have a direct stake in the fortunes of the company, either good or bad. They share ownership of the net assets of the company, after all liabilities are met and they normally receive a share of the company’s profits in the form of dividends. They are entitled to receive information on the company’s performance in the form of the annual or periodic accounts, and to meet once a year at the company’s Annual General Meeting and to vote to appoint the Board of Directors and other officers to run the company on their behalf. It should be noted that ordinary shareholders bear the greatest risk of ownership as they have no right to receive a dividend, but it is normal that they do so once the company generates enough profits to support the payment.

Preference shareholders do have a right to receive a dividend, the amount to be paid to this class of shareholder is noted in percentage terms in the description of the share, for example 5% Preference Share. It can also be stated in dollar terms as $5 Preference shares. These shareholders are paid out of retained profits before any payment to the Ordinary or Common shareholders.

Because of this right to receive a defined payment, these shares are less risky but conversely also cost more than ordinary shares.

By now you may be asking yourself how you can get your hands on shares in a company. The answer is dependant on whether the company is public or private company. Private companies normally do not offer their shares to the public and have greater control over the decision as to who can purchase shares. Public companies have their shares listed on a Stock Exchange, which is basically a place where stocks in public companies can be bought and sold. At pre-determined times investment professionals called stockbrokers meet at the Exchange and negotiate between themselves to purchase or sell shares on behalf of their clients who wish to trade their shares. If you would like to buy or sell shares you need to contact a stockbroker who will trade on your behalf.

All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgment as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever.

CMMB and/or it employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.