What types of actions are there?
1.- Classification according to ownership
Shares can be classified according to their ownership into two types: sharesto the carrierand actionsnominative.
1.1.- Bearer shares
Bearer shares arethe most commonand own all shareholder rights. The limited company usually does not know the name of all the shareholders and if you want to transfer or sell your shares to third parties, it is not necessary to inform the limited company.
1.2.- Registered shares
Registered shares work in a completely different way, sincebear the name of the investorwho bought them. The corporation keeps a record of all shareholders and every time there is a transfer of shares, the ownership is changed in the company's share register. If you sell registered shares, you must notify the company. In practice, this task is automatically executed by your bank's share depository.
2.- Classification based on share rights
There is another important classification based on the rights of the shares. Here actions can be classified into actionsordinaryand actionspreferred.
2.1.- Ordinary shares
Common shares have the following rights:
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Right to dividends, as long as the company decides to distribute part of its profits to shareholders.
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Right to speak and voteat the General Shareholders' Meeting.
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Right of first refusalfor the subscription of new series of shares, in case of capital increases.
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Information rightabout the progress of the corporation, that is, to have access to the accounts and balance sheet of the company
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Right to freely transfer shares, that is, the right to sell or transfer the shares whenever you want.
2.2.- Preference shares
What additional rights do preferred shares have compared to common ones? We are going to see it in a practical way based on an example of a Spanish company listed on the Stock Exchange, the Grifols company. The Grifols company is a Spanish multinational specialized in the pharmaceutical-hospital sector and present in more than 100 countries. As an investor, we can buy two types of Grifols shares in the continuous market, class A shares or common shares and class B shares or preferred shares. As the chart indicates, Class B shares are cheaper than Class A shares.
What is the reason for this? This is because thepreferred stockor class Bdo not have the right to vote. So why are they called preferred shares? Contrary to what its name suggests, this type of stock has a disadvantage compared to common stock. It is for this reason that preferred shares generallytend to be somewhat cheaper than common stock. Investors are not willing to pay the same price as for a common share with voting rights. For private investors it is not a disadvantage not to have the right to vote. Their percentage of participation in the company is so low that their right to vote has little influence on the future of the company. As a reward,companies typically pay shareholders with preferred stock somewhat larger dividends, since they usually have somedividendsagreed that in case of obtaining benefits, they are always paid before distributing dividends to the ordinary shares. Going back to the Grifols example, the company has been paying preferred shareholders one cent more per share for years.
Preferred stock has preference over common stock in the event that a company goes bankrupt and the company is liquidated. In cases of liquidation of a joint stock company, the shareholders are subordinate to the creditors, the company must first settle all its debts with the creditors. Then you must return the money to the preferred shareholders whenever you can and ultimately if there is still any money left, it will go to the ordinary shareholders.
Given this, it may be interesting as an investor to buy preferred shares. The price is usually lower and there is a chance of getting more dividends. In return, the right to vote is lost, which in any case begins to be interesting from millionaire investments.
Very few companies have two types of shares, in fact, unless otherwise clarified, the type of action that is purchased through the platforms will always be of the ordinary type. Worldwide, there are several well-known and important companies such as Alphabet (Google's parent company), Volkswagen or BMW, which have both common shares and preferred shares in circulation.
3.- Spanish crisis of preferred shares (2008-2010)
In Spain, the most frequent type of shares is also ordinary shares. In fact, preferred shares have a very bad image due to the scandal that occurred during the 2008-2010 crisis, when banking entities abused the trust of their regular customers. by selling them the preferred stock, without properly informing them that it was an equity investment. In most cases, the investors were individuals with little financial education, trusting clients, who believed that it was a safe investment as it was an investment in fixed-income assets and aspired to obtain periodic income with the peace of mind of being able to recover the capital. main at any time. As these preferred shares distributed dividends periodically, these investors did not realize that the financial product contracted was not really a fixed-term deposit. The alleged scam was discovered when, due to the economic crisis, savers were unable to recover the money invested because the share price fell.