Shares, more commonly known as “stocks” are units of ownership interest in a company or corporation. Simply put, it is a division of different parts that constitute a company’s capital which entitles the owner of these shares to a proportion of the profits.
To begin, one needs to know that publicly listed companies shares are traded on stock exchanges such Singapore Exchange Limited (SGX) and New York Stock Exchange (NYSE). These shares are “monitored” by the local authorities themselves as sufficient public interests are involved. However, it is ascertained that by going public, a company can raise more funds for expansion and growth, at the same time, the public has increased accessibility in terms of purchasing and selling the stock.
A private company however, loses out in terms of accessibility to raise funds. As these companies are not publicly listed, they are only opened to a group of investors or shareholders within their own network. One can easily conclude that a private company has lesser scrutiny as compared to a public company.
In Singapore, there are two kinds of shares a shareholder can purchase so as to have ownership interest in a company. The
most common to investors are the ordinary shares of the company.
Ordinary shares are shares that gives a shareholder ownership interests and also voting rights in important meetings such as Annual General Meetings (AGMs) or Extraordinary General Meetings (EGMs). These include key decisions such as appointment of Directors or Chief Executive Officers. Ordinary shareholders then make profits through capital appreciation of their shares, which is the increase in value of their shares (as the company grows), or through the issuance of dividends on the ownership of their shares.
Preference shares are shares that also gives a shareholder ownership interests but not voting rights in important meetings, unlike ordinary shares. The main key difference of preference shares lie here. Preference shareholders are promised a premium that is to be paid on their preferential shareholdings. These premiums are often interest on the capital vested, therefore these premiums are often labelled as “current liability” when it comes to auditing. Preference shares can also increase in capital appreciation – as long as a buyer thinks it is worth it to purchase the shares from you at that price. This is also one of the most commonly held shares by prominent investor Warren Buffet.
Hence, there is never-ending debate as to whether one should hold on to ordinary or preference shares. It varies from what an investor values or has access to.
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*** This report is neither an offer nor the solicitation of an offer to sell or purchase any investment. Comments are based on information obtained from sources believed to be reliable but Fides Assets makes no representation and accepts no responsibility or liability as to its completeness or accuracy.