Perhaps one of the most crucial concepts to understand when running a company: shares. It forms the foundation of the company's ownership and, consequently, employee participation. Therefore, in this article, we will explain everything about it!
What are shares?
A company is divided into shares. Originally, a share is the proof that you own a part of a company. Possessing a share means owning a part of a company: it's a kind of ownership certificate. If a company consists of 100 shares, and you own 5, you are a five percent owner of that company. Except in practice, companies will typically have many more shares.
Why buy shares?
There are numerous of reasons why people buy shares, with the primary one being investment. There are two ways you can earn money through shares:
Method 1: Through dividends. In a profitable year, a company will typically choose to reinvest a portion of the profit back into the business. However, the remaining portion will be distributed to the shareholders in the form of dividends. Each shareholder then receives a proportionate share of the dividend payment.
Method 2: Through value appreciation: A share has a certain value, also known as the stock price. As a company grows, the total value of the company increases. Since a share is evidence of ownership of a part of a company, the value of the share will also increase. This allows you to sell it at a profit.
What is the value of a share?
The value of a share fluctuates and is therefore not fixed. It is mainly determined by the performance of the underlying company. The value of this company ultimately determines the value of the share. The company itself determines how much it is worth when issuing the shares, but it becomes entirely dependent on the stock market (stock price) afterwards.
How do you transfer shares?
The transfer of shares must be done through a notarial deed, also known as the share transfer deed. To do this, you need to visit a notary. This often makes it challenging to transfer these shares. That's why there is often the choice to establish a STAK (Trust Office Foundation) and issue share certificates.
What rights do you have as a shareholder?
As a shareholder, you have various rights. These include the right to receive dividend payments, the right to convene a meeting, the right to submit a request for an investigation procedure, and the voting rights in the shareholders' meeting. Especially the rights related to the shareholders' meeting can have far-reaching consequences. For example, the shareholders' meeting can dismiss and appoint directors of the company and amend the articles of association.
What are the different types of shares?
There are numerous types of shares, including:
- Normal shares: these are shares in their purest form.
- Share certificates: these are not actual shares. They only transfer the economic ownership of the shares, not the legal ownership. Legally, you are not the owner of the company, but economically you are.
- Non-voting shares: these shares do not confer voting rights in the general meeting.
- Non-dividend shares: with these shares, you do not have the right to the dividend payment, but you do have voting rights.
- Preferred shares: these shares provide a guaranteed, fixed, and regular dividend payment and have a maturity date for receiving the redemption value.
What are the risks of shares?
But with all these advantages, there are, of course, risks involved. The risk primarily lies in the devaluation of the underlying companies. If a company is not doing well, the shares will also decrease in value. Additionally, companies may be less inclined to pay dividends to shareholders during tough times. Consequently, you could lose money by investing in shares. The ultimate risk is when the underlying company goes bankrupt: when this happens you are last in line to receive your invested money back.
Any more questions?
If you have any more questions after reading this article, feel free to explore our knowledge base. Additionally, you can participate in our informative webinar; we are ready to answer all your questions there!