Three characteristic benefits are typically granted to owners of ordinary shares: voting rights, gains, and limited liability. Common stock, through capital gains and ordinary dividends, has proven to be a great source of returns for investors, on average and over time.
Disadvantages. Some of the disadvantages are given below: Share prices of ordinary shares are mainly decided by the market forces which are volatile in nature and can lead to a lot of fluctuation in the value of the shares. If the company goes into bankruptcy shareholders can lose the entire investment amount.
Advantages and disadvantages of ordinary shares as a source of finance. There is no obligation to repay the funds raised through an ordinary share issue. The amount and timing of the dividend payments is flexible. Issuing new shares will typically dilute the control of the original shareholders.
Ordinary shares, also known as common shares, is defined as shares of a company that give shareholders the right to vote in the company’s meeting and also an income in the form of dividends from the corporation’s profits.
An ordinary share is a form of corporate equity ownership, i.e., a type of company share. … For example, if XYZ PLC issued 10,000 shares and you own 500 ordinary shares, you own 5% of the company. Every PLC must have ordinary shares as part of its stock. PLC stands for Public Limited Company.
If shares can be freely sold, seller and buyer can negotiate a price between them. However, the company’s articles of association, or a shareholders’ agreement, may specify how the shares are to be valued. For example, the value might be established by the company’s accountant.
Benefits are in the form of an absence of a legal obligation to pay the dividend, improves borrowing capacity, saves dilution in control of existing shareholders and no charge on assets. The major disadvantage is that it is a costly source of finance and has preferential rights everywhere.
Benefits of investing in shares
- Part-ownership of a company.
- Real-time dealing throughout the trading day with limit orders available when markets are closed.
- Receive dividends either as income or re-invest to buy more shares.
- Ability to vote on important company decisions.
An ordinary share represents a fraction of ownership in the corporation that issues it. As an owner, the shareholder gets a vote in the company’s major decisions, decided at its shareholder meetings. The shareholder may or may not receive a dividend.
The ordinary shareholders are entitled to share in the earnings of the company only if cash dividends are paid. The declaration of cash dividends depends entirely upon the board of directors. This aspect reveals the basic difference between the rights of an ordinary shareholder and rights of a creditor.
Ordinary shares are issued when the company is incorporated. But later, the company can open shares to the public an issue new stock or the owners can sell their shares on the stock exchange. The total amount of money the company raised through the sale of the shares is called share capital.
Ordinary Share Capital = Issue Price of Share * Number of Outstanding Shares
- The issue price of the share is the face value of the share at which it is available to the public.
- The number of outstanding shares. It is shown as a part of the owner’s equity in the liability side of the company’s balance sheet.
As an investor, common stock is considered an asset. You own the property; the property has value and can be liquidated for cash. … The capital is used as savings, to buy machinery or property, or to pay operating expenses.