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Financial Dictionary - Shares


What is a share?

They are effectively the proportional units into which a company's capital is divided. Companies frequently issue shares in order to raise funds.

In other words, companies issue and sell shares in the primary market to obtain financing for the company's operations.

The value of all the shares of a company is its market capitalisation. Each share confers dividend and voting rights upon the holder (also known as the shareholder), who therefore owns a part of the company, entitling them to share in the profits or to vote at general shareholders' meetings, based on the number or proportion of shares they hold.

Types of shares

There are various types or classes of shares, each conferring different rights upon their holders. Perhaps the most common are ordinary and preference shares. Ordinary or common shares are those that give the shareholder the right to vote at general shareholders' meetings and receive dividends depending on the company's profit distribution policy. This is the most common type.

Preference shares grant a further benefit or privilege, affording these shareholders priority over the company's ordinary shareholders (ordinary shares). These privileges usually take the form of a larger share in the distribution of profits or priority when carving up the company's assets in the event of its liquidation. However, this privilege often entails the loss of other rights, such as the right to vote.

These shareholders are typically required to hold a certain number of shares of a certain class in order to be able to exercise rights such as voting or attending general shareholders' meetings. For instance, the company may insist that shareholders hold at least 100 shares in order to attend a general meeting, or that every 100 shares grants the right to one vote.

Meanwhile, not all the shares of a company are floated on the market. The shares that are actually in circulation are those that can be bought or sold (traded) on the stock markets, and are known as free float.


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