Shares - Participating in companies

Anna und Michael stehen vor dem Handelssaal und schauen Aktienschein an

If a company wants to expand and has to buy new machines or hire new employees, it needs capital. It can obtain this capital in various ways. For example through a bank loan, a bond or shares. Shares have existed since the Middle Ages. In the 17th century they were increasingly issued by Dutch trading companies to finance costly shipping to Asia. With shares, a company sells share rights and people participate in the company, which then become co-owners, so-called shareholders. In a nutshell:

Shares are shares in the equity capital of a stock corporation. They are tradable company shares.

Today, shares can be issued, i.e. issued or sold, by stock corporations (AG) or limited partnerships on shares (KGaA). If a company goes public and sells shares to many investors for the first time, this is called an IPO, short for "Initial Public Offering". When the company goes public, it receives money for selling its shares and thus for its planned investments. IPOs take place on the primary market, which is where shares are issued for the first time. The subsequent trading of the shares by the investors then takes place on the secondary market.

Shareholders' rights

The ownership of the shares is associated with important rights for the shareholders, among others 

They receive a share in the profit, the dividend, according to their share.
If the company is dissolved, they also receive a share in the liquidation proceeds.
If the company wants to issue further shares, the existing shareholders will receive subscription rights so that their share in the company remains unchanged.

Shareholders also have the right to participate in the annual general meeting at which important company matters are approved. They also have the right to vote if they are holders of ordinary shares. 

The different types of shares

So there are different types of stocks. The most important distinction from an investor's point of view is between ordinary shares and preference shares. Preference shares do not carry voting rights, but the dividend is usually slightly higher. 

Another important distinction is the type of transfer. In the case of bearer shares, ownership is sufficient and they are therefore transferable and transferable formlessly. In the other form, registered shares, the names of the owners are entered in a share register. In the case of registered shares with restricted transferability, the public limited company must even agree to registration. 

If the joint-stock company is successful, the shareholders also benefit.

If a company makes a profit, this naturally also benefits the shareholders: as they participate in the profit. Part of the company profit, specifically the amount of which is decided at the annual general meeting of the stock corporation, is distributed as a dividend to the shareholders. If the economic situation is good, the price of the share is likely to also rise, because if other potential investors are convinced that the company will continue to be successful in the future, they also want to acquire shares in the company. This increases the demand for and price of the share on the stock exchange. 

The price of a share is composed as follows

The price of a share is based on the expectations of the future development and possible profits of a company. Due to different expectations of investors about the future development of a company, shares are often bought and sold in parallel. Buyers expect a positive development of the company. For the time being, sellers assess the development as finished, or want to realize price gains through the sale. 

Low interest rates make a stock investment even more attractive

This is particularly good news for all those who are hesitant to buy shares at the moment: Thanks to the current low interest rates, companies can raise capital at particularly low cost, which can lower costs and thus increase profits. In addition, this interest rate situation makes it easier for companies to invest and expand. Equities also offer significantly more lucrative opportunities for returns than fixed-interest investments, which can lead to an overall increase in demand for equities and thus to an increase in the value of the money invested. Equities are also more resistant to inflation than, for example, conventional savings books, as they are a tangible asset as a company share, similar to real estate. All you need to buy shares is a deposit with your bank.

First Steps

Other asset classes

 

Do you have any Questions?

Ask us online!