Difference between common and preferred shares.

Shares of commercial enterprises are classified into 2 main categories - ordinary and preferred securities. What is the specificity of both?

What are ordinary shares?

Under ordinary it is customary to understand shares that give their owner the right:

  • to actively participate in business;
  • to receive the company's distributed profit - in the form of dividends.

The main source of capital for the shares under consideration is the firm's net profit. The amount of dividends paid to holders of ordinary shares is determined by the company's governing bodies. The distribution of capital is carried out in proportion to the shares in the ownership of the common shares of the company between their different holders.

What are preferred shares?

Under preferred shares are understood, implying that their holders have additional powers in business management. But in some cases, and vice versa - in the conditions of owning these securities, restrictions on the management of a company for a particular entity may be prescribed.

Holders of preferred shares also receive dividends, but their amount can be determined in a fixed amount or in a specific amount of interest from the company's net profit. Ownership of the securities in question is characterized by a number of other advantages for an investor. Such as:

  • the possibility of obtaining guaranteed amounts of income;
  • gaining priority in the distribution of profits;
  • obtaining priority in compensation for the value of securities in the liquidation of the company.

There is an additional classification of preferred shares. They are usually divided into:

  1. standard privileged;
  2. cumulative.

Owning shares of the first type guarantees the investor receiving income in a specific amount - including the scenario of liquidation of the company. Payments on such securities are usually the highest priority in terms of the distribution of the firm's profits.

Cumulative shares imply the accumulation of obligations by the firm to pay dividends to the investor within a fixed period. If the company is unable to transfer funds to the owner of the securities in the prescribed amount, he receives the right to vote in the board of directors until the firm settles with him.

Comparison

The main difference between ordinary shares and preferred shares is that the owners of the first type of securities have, as a rule, lower priority in the distribution of the firm's net profit and receive income only if the firm's income exceeds expenses. The holder of the preferred share, in turn, in most cases receives a guaranteed profit and has priority in receiving the distributed capital.

It should be noted that the possession of preferred shares often implies restrictions on human participation in the management of the firm. However, he can receive the appropriate powers - if the company is unable to fulfill its obligations to pay dividends. While the owner of ordinary securities, as a rule, there are no such restrictions. He has the right by default to participate in the management of the business.

The cost of ordinary shares is mainly formed on the basis of the exchange principle. The price of the privileged, as a rule, is made at the level of local management decisions. Potentially, securities of the first type can be a more profitable investment - if the capitalization of the company on the stock market grows. But they are usually viewed as less secure investments. An important nuance: in accordance with the legislation of the Russian Federation, a company is not entitled to place preferred securities if their par value is lower than that established for ordinary shares.

The total share of the value of preferred shares in the authorized capital of Russian companies should not exceed 25%. For ordinary securities, such restrictions are not established by law.

Having identified the difference between common and preferred shares, we reflect the findings in a small table.

Table

Ordinary shares Preferred shares
Their owner usually has the right to participate in the management of the business.54)Capitalized, as a rule, on the stock exchange principle, in stock tradingCapitalized in accordance with the decisions of the company's management - but their nominal price should not be lower than that established for ordinary shares
Do not assume special priority for the owner in the distribution of the company's net profitAssume that the owner receives a priority share of the company's net profit
As a rule, do not imply a guaranteed income for the investor - only in the case of stable business growth and the excess of the firm's income over expensesK as a rule, they assume that the investor will receive a guaranteed profit - but not always as high in potential as in the case of ordinary shares
case no restrictionsCan be up to 25% of the authorized capital of a Russian company
.