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Common Shares
Common shares are the typical shares issued by a corporation in exchange for investments. They represent fractional pieces of ownership in the business.
Characteristics of Common Shares
- Voting rights
- Residual claimants in a liquidation
- Dividends can fluctuate each year
The Average Issue Price
- Average price that existing shares were sold for
- Also called book value per share
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Preferred Shares
Companies can issue preferred shares to investors that are looking for a safer way to invest in the business. Preferred shares are preferred by investors looking for fixed income rather than growth.
Characteristics of Preferred Shares
- Fixed dividend payment
- Priority over common shares for payment of dividends
- Priority over common shares during liquidation of business
- No voting rights
Cumulative Preferred Shares
- Not all preferred shares are cumulative
- Accumulate dividends in arrears in each year dividends were not issued.
- Must be repaid all dividends in arrears before new dividends can be paid.
The Average Issue Price
- Average price that existing shares were sold for
- Also called book value per share
Practice: Types of Shares
Answer the following multiple choice questions by selecting the best answer.
A common shareholder receives a payment in the event of a liquidation: