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Shares - What are shareholder rights and benefits?

What are shareholder rights and benefits?

Aside from the potential to profit from a rising share price (capital gain) or earn an income through dividend payments, being a shareholder also entitles you to a range of other rights and benefits. However these will differ depending on whether you own ordinary or preference shares.

Ordinary shares

An ordinary share represents part ownership of a company, with each ordinary share representing an equal amount of ownership (or equity ownership). Ordinary shares are the most common type of stock (hence why they are also known as ‘common stock’) and although ordinary shares may pay a dividend, there is no guarantee they will.

What are the rights of an ordinary shareholder?

As an ordinary shareholder you are entitled to:

  • Participate in annual general meetings (including the election of directors and director remuneration)
  • Access reports and other relevant company information
  • Dividends (should the company choose to pay a dividend)
  • Dividend reinvestment plans (if offered by the company)
  • A variety of corporate actions (including share issues if offered).

What are preference shares?

As the name suggests, preference shares give the owner preferential treatment over ordinary shareholders through fixed dividend payments. Should the company go out of business, preference shareholders will get priority of being repaid over ordinary shareholders as well.

With a fixed dividend, the company agrees to pay the preference shareholder a fixed percentage return as a dividend payment. This gives the investor greater certainty over what the return on their investment will be (with ordinary shares there is no guarantee a dividend will be paid or how much it will be).

However, preference shareholders don’t get the same entitlements of ordinary shareholders, such as being able to participate in annual general meetings and vote on the election of the board of directors.

Things you should know

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