Equity

1.        

What is equity?

Equity securities, generally referred to as shares, comprise ordinary shares and preference shares. Most of the equity securities listed on the Stock Exchange are ordinary shares that account for most of the turnover of the Stock Exchange.

2.        

What are the differences between ordinary shares and preferred shares?

Ordinary shares and preferred shares are equity shares issued by the company to shareholders. Ordinary or common shareholders (i.e. holders of ordinary shares), being owners of the company, have voting rights and receive dividends at the discretion of the company. However, the payment of dividends is not mandatory even if a company records a profit in the year.

3.        

Are there any differences in the entitlement of ordinary shareholders and preferred shareholders?

Preferred shareholders are entitled to a preferential distribution out of profits prior to any distribution to the ordinary shareholders. Preferred shareholders have no voting rights and receive fixed dividends (i.e. the dividend does not increase even if the company's profit increases). Preferred shareholders also have a claim on corporate assets, in the event of liquidation, which ranks ahead of ordinary shareholders, but behind that of the company's creditors. Participating preference shareholders may receive additional dividends if the profits are sufficient. Meanwhile, cumulative preference shares carry forward the right to profits to following years, if there are insufficient profits to pay the holders in any one year.