Many people who buy shares don’t know what class of shares there are buying. Not all shares are the same and some shares may be better for you than others depending on your personal circumstances. When buying shares, it is imperative that you know what share class you are buying into in-order not to get any nasty surprises later. This article will help to identify different share classes and give a brief overview of their characteristics.
1) Ordinary Shares
- These are the most common class of shares.
- Dividends on shares depend on profits.
- They grant right to vote at shareholder meetings.
- They have a claim to share of surplus assets when the company is winding up ( Click here to see in what order a company pays out stakeholders when it is winding up).
2) Preferred Ordinary Shares
- These are like ordinary shares but with more rights.
- Dividend must be paid on these before ordinary shares.
- Could have preferential rights in a winding up.
3) Redeemable Ordinary Shares
- Issued by the company with the agreement that the company will buy them back after a certain period or a fixed date.
- This class of shares tend to be uncommon
4) Preference Shares
- Dividends are paid on preference shares before any other class of shares.
- They tend to have a fixed rate of dividends.Get preferential rights when the company is winding up.
- Normally not entitled to any voting rights.
Preference shares are best for those that want to build income from dividends .
5) Cumulative Preference Shares
- Similar to preference shares, but any unpaid dividends must be made up in future years.
- If dividends not paid in a certain year for whatever reason, it has voting rights in that year where dividends not paid.
6) Redeemable Preference Shares
- Similar to preference shares but shares are repayable by a stated date or period.
7) Participating Preference Shares
- Like preference shares, but gives rights to dividends if profits exceed a certain level.
- This share class is good for people who think a companies profits will exceed expected levels.
As you can see from the above, there are many different types of share classes out there so make sure you get the right one for you!