How the stock market works

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6. Different types of share

1. Ordinary Shares

   Most investors are interested in the 'Ordinary' shares of a company. These are the ones that people talk about when they refer to a company's share price. Ownership of an ordinary share gives you:

   • a share in the company's dividend which is declared once or twice a year
   • a stake in the company's assets
   • a right to receive notice of, and attend, the company's Annual General Meeting
   • the right to vote on issues affecting the company (e.g. appointment of directors and auditors, rights issues, employee share schemes, takeover bids)
   • the right to receive the Report and Accounts of the company (if your ownership is registered in a nominee account you may be able to obtain these through the nominee company)
   • shareholders' perks

   Sometimes companies issuing new shares will issue them as 'partly paid' rather than 'fully paid'. This is a device to make them more attractive to investors. All it means is that investors pay for the shares in two instalments.

2. Preference shares

   Preference shares differ from ordinary shares in having a fixed dividend. The company has to pay dividends on preference shares before ordinary shares, and if the company goes into insolvency, preference shareholders are ahead of ordinary shareholders in the queue.

   In exchange for the greater security, preference shares usually have reduced, or no, voting rights, and provide lower yields, at least over the long term.

   Convertible preference shares give the holders the additional right to convert the preference shares into ordinary shares.

1. Why do companies list on the Stock Exchange? 2. Offers for sale 3. Offers by tender, and other methods of admission 4. The Official List 5. AIM and OFEX 6. Different types of share 7. Reasons for market indices 8. The FTSE indices 9. Sectors 10. Scrip issues 11. Rights issues 12. Convertibles 13. Warrants 14. Share buybacks 15. Shareholder perks 16. Suspension 17. Insolvency 18. Conclusion