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What are Ordinary Shares?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 September 2016
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Also known as voting shares or common shares, ordinary shares are shares of stock that provide the holder with the privilege to participate in any voting activity that has an impact on the direction of the issuing corporation. This includes the right to cast votes for those who are seeking a seat on the corporation’s board of directors. Shares of this type usually provide the holder with some type of dividend, which is paid according to the terms and conditions related to the issue of the individual shares.

For investors, the purpose of owning ordinary shares has to do with the rate of return that can reasonably be expected from those shares. To this end, investors will often seek to acquire enough shares of a given stock to generate a reasonable amount of increase to the value of the investment portfolio over time. When the return is not in keeping with the expectations of the investor, there is a good chance that the shares will be sold, and the investor will acquire shares issued by a different company that present the potential for a more attractive return.

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There are situations where investors choose to acquire ordinary shares issued by a given company because they see the long-term potential of the business and want to be a part of the process of building the business in order to reach that potential. When this is the case, the voting rights and responsibilities may be considered at least as important as the generation of a steady amount of dividend income. Investors who think along these lines want to be involved in setting corporate policy, as well as having a role in determining who will serve on the board of directors of the business.

Investors holding ordinary shares do not necessarily have to be physically present when a vote on a matter of policy or the filling of a seat on the board of directors takes place. In many jurisdictions, corporations can structure the voting process to allow the shareholders to submit a voting document that expresses their wishes in regard to the current issue facing the company. Often, the business creates the document, then distributes it to the shareholders, who have the responsibility of returning the completed voting document by a specific date and time.

While there are benefits connected with ordinary shares, including the earning of regular dividends, there is also some degree of risk. Should the issuing corporation be dissolved for any reason, investors holding ordinary shares usually must wait for their share of the remaining capital after debenture holders, other types of secured creditors, and those holding preferred shares of stock are compensated according to the provisions of the dissolution. This means that the investor may or may not receive enough in the settlement to offset the original investment, effectively creating a loss for the investor.

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