Shares: the basics of corporate ownership

Shares represent a shareholder’s minimum stake in the capital of a corporation, limited partnership, or cooperative. When an investor purchases shares, he or she becomes the owner of a portion of the company and, in return, obtains ownership and governance rights, contributing to the company’s capital and accessing potential economic benefits. This financial instrument is among the best known and most widely used, offering opportunities for profit through dividends and the opportunity to participate in corporate decisions.

Characteristics and rights of shares

Each share has a par value and grants holders specific rights, such as circulation andindivisibility. Although all shares in a company grant similar rights, some categories offer special benefits. For example, preference and savings shares provide greater equity rights than ordinary shares, but limit political rights. Then there are shares such as multiple-vote or enhanced-vote shares , which give holders greater influence in corporate decisions. Shareholders can manage their securities freely, either by selling some shares and keeping others or by exercising voting rights on a selection. This flexibility allows investors to tailor holdings according to personal goals.

Classification of shares

Shares are divided into different categories according to rights, circulation regime and capitalization of the issuer:

• Ordinary shares: grant full property and political rights.
• Savings shares: limit voting rights, but offer economic benefits.
• Preferred shares: priority in dividends, but limited voting rights.
• Restricted voting shares : reduced voting rights compared to ordinary shares.
• Larger or multiple voting shares: confer greater influence at meetings.
• Registered and bearer shares: differ in owner traceability.
• Blue Chips, Small Caps and STAR: classify stocks according to capitalization and importance in the market.

These categories allow investors to select stocks that reflect their financial goals and desired degree of participation in governance.

Economic and administrative rights of shares

Shares grant shareholders various economic and administrative rights that vary according to the type of share and corporate policies. Among the economic rights, the right to a dividend is one of the most important, allowing shareholders to benefit from corporate profits distributed in proportion to their holdings. In addition to the dividend, shareholders are entitled to repayment of capital in the event of liquidation of the company, a safeguard that partially reduces the risk of total loss of invested capital. On the administrative side, the right to vote at the shareholders’ meeting allows shareholders to actively participate in the management of the company, expressing their preferences on strategic decisions such as appointments and changes in the bylaws. In addition to voting, they can challenge decisions that they feel are detrimental to their interests, an action that protects their position and makes them participants in the most relevant corporate decisions. Other rights, such as the right of withdrawal and the right of option to purchase new issues, provide additional flexibility, ensuring that shareholders can divest or increase their weight within the company. All these rights together ensure that shareholders play an active and influential role in corporate decisions, strengthening their investment protection.

The circulation of shares and dematerialization

Shares can be transferred freely, allowing shareholders to sell their holdings without special constraints. Some companies, however, may impose restrictions on free circulation, such as requiring board approval or granting a right of first refusal to certain shareholders. This type of restriction is often adopted in family businesses or businesses with a small number of participants in order to maintain control within a small group. With the introduction of the dematerialization of shares, transfers have been further simplified, as it is no longer necessary to exchange physical certificates. Today, transactions are handled through centralized accounts at Monte Titoli, a centralized entity that ensures the security and transparency of movements. This innovation has also facilitated the liquidability of shares, making them financial instruments that are easily tradable in the markets. In practice, thanks to dematerialization, it is possible to buy and sell shares in a very short time, increasing the attractiveness to investors and contributing to a more dynamic market that is accessible to anyone wishing to invest.

Shares and voting rights

One of the main prerogatives associated with share ownership is the right to vote.This right is a powerful tool for influence within the corporation, as it allows shareholders to express their consent or dissent on crucial issues such as the approval of financial statements, the appointment of directors, and future growth strategies.However, there are various types of shares, each with specific characteristics.For example, limited-vote shares entitle holders to cast votes only in some particular circumstances, while multiple-vote shares allow holders to exercise more votes than the share they hold.This differentiation is often used to allow strategic or founding shareholders to retain control over corporate direction, even when they own a minority of the total shares.Thus, the share is not only an investment tool, but also a means of active participation in the management and future direction of the company.Those who invest in shares, therefore, are not only aiming at financial gain, but often also at obtaining a role, either directly or indirectly, in corporate management choices.

Debt and equity financing: the role of shares

To grow and generate profits, companies need financing, which can be obtained through debt (bank loans and bonds) or equity (sale of shares).In corporate finance, we speak of debt financing for bank loans, which create senior debt, and mezzanine debt for high-risk loans, which create junior debt.Equity financing, on the other hand, involves the issuance of shares, granting investors ownership rights.

Historically, shares were paper certificates representing shares of capital.Today they are fully dematerialized, and they are bought and sold through online trading platforms.Shares allow companies to access capital and investors to capitalize on corporate success.The gain for shareholders comes from dividends and any capital gains from the sale of shares.

Stocks and bonds: comparison and risks

Unlike bonds, which represent a loan to be repaid with interest, stocks do not require repayment.However, they do offer shareholders dividends, which are paid out only when profits are made.Bonds provide stable earnings, with less risk than stocks, which potentially have a higher return, but with the risk of losing invested capital. Notably, stocks offer earnings directly proportional to the success of the company, making them more attractive to those seeking a high-potential investment.

Stocks and the stock exchange

Stocks trade on over-the-counter (OTC) markets and on stock exchanges, such as NYSE, NASDAQ and the Italian Stock Exchange.Listing on stock exchanges requires compliance with specific criteria and provides greater transparency for investors.

The first shares of a company issued on the public market are called an initial public offering ( IPO ). After listing, shares may vary in value depending on corporate performance and ratings by rating agencies.

The stock market is part of the securities market, along with the bond market and the derivatives market. Market capitalization represents the total value of all shares issued by a company and varies with corporate growth and market fluctuations.

The role of shareholders and shareholding plans

Shareholders can include individual investors, large institutional investors, and even corporate employees through employee stock ownership plans (ESOPs).

With ESOPs, employees receive shares that generate dividends and offer the opportunity to sell them back for a profit.Private investments, such as private equity and venture capital, help finance startups and small businesses, supporting their growth.

Stock price and valuation

The listing of a stock reflects its market value and depends on factors such as the company’s profitability and overall market performance.When a company goes bankrupt, creditors and shareholders participate in the distribution of assets according to a hierarchy, which favors bondholders over ordinary and minority shareholders.This mechanism ensures creditor protection and allows shareholders to recover a portion of their invested capital in the event of liquidation.

This article was created and reviewed by the author with the support of artificial intelligence tools. For more information, please refer to our T&Cs.

This article or page was originally written in Italian and translated English via deepl.com. If you notice a major error in the translation you can write to adessoweb.it@gmail.com to report it. Your contribution will be greatly appreciated