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Great Titchfield Street, London -- When many people first buy shares or get them awarded through demutualisations they are unsure about rights as shareholders, and what a share actually represents. So here's a quick guide to some basic facts that every shareholder should know. What is a share? At its simplest level a share gives you part ownership of the business concerned. This means you are entitled to vote on major proposals affecting the company and receive a portion of the profits that are paid out to you as dividends. You're the boss, or at least one of them. Most shares that are traded on the Stock Exchange are "ordinary shares", often shortened to "ords". There is also another type of share known as "preference shares" or "prefs", although these are fairly rare these days. Both types of shares entitle you to a portion of the company's profits. However, in the case of preference shares this portion is fixed in relation to the original value of the share. This rate is expressed as a percentage, such as 9.25% Bank of Scotland Preference Shares (LSE: BSCA). In many cases preference shares are redeemed on a set date. Some are even capable of being convertible into ordinary shares. However, ordinary shares remain outstanding until the business is wound up. Ordinary shares give you the entitlement to whatever profit is left after all other claims on it are settled. Unfortunately there are a lot of claims. They include payments to suppliers, employees and the nasty old taxman. Those lending money to the business and preference shareholders also come before ordinary shareholders. However, not all profits are paid out in the form of dividends. In most cases some cash is retained in the business for reinvestment. It's also worth noting that if there is a shortfall between what the company makes and the amount it owes then shareholders are not liable to stump up for the difference. They have what is known as limited liability, meaning that in any event their liability only extends to the original amount they paid for the shares. After you have paid for the shares in full you have no further obligation. Nominal values If you look at any share certificate you will see that each ordinary share has a monetary value in its description. For example the full description for BT (LSE: BT.A) shares is British Telecommunications plc Ordinary 25p. This amount is known as the nominal value of the share and has no connection with actual value of the share. In fact for most people's purposes this value only has one significance. It sets a minimum value at which these shares can be issued, so that the business has at least a minimum pool of capital available to it in order to pay its creditors. What are your rights?
Apart from a right to receive a share of profits, what other rights do you have as a shareholder? As mentioned above, you have the right to vote on major issues affecting the company. This usually only extends to matters unconnected with the day-to-day running of the business. Shareholders delegate those duties to the directors of the company. As a shareholder you get to vote on major acquisitions and disposals, which can be loosely defined as those that a greater than a quarter of the size of the current business as measured by a number of different methods. You also get to approve share buybacks, share splits and the appointment of directors and auditors. But don't let all that power go to your head. If any of these events occur you also have a right to receive notice of the meeting at which they will be decided. There is a minimum notice period of 14 days and even longer in the case of more complex proposals. The more mundane proposals are voted upon at the company's Annual General Meeting or AGM. When more urgent attention is required the company will call an Emergency General Meeting or EGM. What information is a company obliged to publish? Every UK company has to release information on an official newswire known as the Regulatory News Service (RNS). Most major announcements are made between 7am and 8am each weekday, before trading on the London Stock Exchange begins. The details of the stories you read in the newspaper, and the news items on this site, are often taken from these announcements. A number of friendly Fools post these announcements on the company discussion boards. The major types of announcement are: However as a shareholder you only get sent details of results and any proposals that you need to vote on. If you hold your shares through a nominee account then you may need to make special arrangements to receive these. A nominee account is when your broker holds your shares in a pooled account rather than sending you a paper certificate to prove your shareholding. That wraps up this quick guide. If you've got any questions about the basic nuts and bolts of shares and investing then let us know on the Fool's School discussion board. More From The Fool's School
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