Reviewed by Sep 30, 2020| Updated on
Ordinary shares, also known as common shares, is defined as shares of a company that give shareholders the right to vote in the company's meeting and also an income in the form of dividends from the corporation's profits.
Common shares are one of the most common types of shares. The number of ordinary shares an investor owns is proportional to the percentage of ownership he/she has in a company. For instance, if a company issues all of its 50 shares in the stock market and you own 30 out of them. You would have a 60% ownership of the company.
Ordinary shares come with a wide array of benefits. Not only do you have the right to vote in the company's meetings on various matters concerned with the shareholders, but you can also claim a proportional income in the form of dividends depending on the company's performance.
Also, common shares do not carry a maturity date. Meaning your ownership in the company remains unaffected until the company decides to delist itself or when another company takes over.
Ordinary or common shares are generally issued in the stock market to raise capital for the company. Even if the company wishes to issue more shares in the future, shareholders are first given the option to purchase the issued shares in proportion to your prevailing ownership through the rights issue. This ensures that the holders' shares in the company remain undiluted.
Ordinary shareholders are often referred to as unsecured creditors as shareholders are the last in line to receive dividends if any. The company first distributes the dividends among its preferred shareholders and bondholders. Only then are the dividends, if any, are made available to the ordinary shareholders.
Despite the high financial risk, ordinary shareholders are rewarded greater when compared to preferred shareholders. Unlike the latter whose dividends are fixed or limited, ordinary shareholders are entitled to a greater chunk of the profits if the company performs well.