Shares

Shares securitize units of ownership that represents an equal proportion of a company's capital. The shareholders are co-owners. In return, they regularly receive profit-sharing in the form of dividends. They also have a chance of making price gains. As owners, shareholders have rights and obligations. The issue of shares is also associated with obligations for companies. Shares are the most traded type of security on the Frankfurt Stock Exchange.

Shares represent shares in companies. The owners, called shareholders, are co-owners. In return, they regularly receive profit-sharing in the form of dividends. In addition, they have the opportunity to make capital gains. As owners, shareholders have rights and obligations. The issue of shares is also associated with obligations for companies. Shares are the most traded type of security on the Frankfurt Stock Exchange.

Characteristics of shares

Shares represent shares in a company and are issued by stock corporations (AGs) or partnerships limited by shares (KGaAs). They can be traded on stock exchanges, but do not have to be. The advantage of a stock exchange listing is, among other things, that the value of a share can be determined regularly by the coincidence of supply and demand.

Holders or owners of a share, so-called shareholders, participate in the company's share capital - either as a percentage or in the amount of the nominal value shown on the share. The rights evidenced by a share are governed by the German Stock Corporation Act and the Company's Articles of Association.

Shareholder rights in detail:

• Right to attend the Annual General Meeting,
• Voting right at the Annual General Meeting,
• Right to a share in company profits,
• Right to a share of the liquidation proceeds,
• Subscription right for the issue of new shares.
• For companies, the issue of shares is a form of equity financing. Especially for young companies from promising industries, this form of financing is of decisive importance for their economic development.

When going public, companies opt for one of the four statutory market segments and the associated level of transparency. This decision is associated with various transparency requirements, such as the type and frequency of reporting, ad hoc publicity, etc. The transparency requirements for an IPO are also different. These obligations serve not least to protect shareholders.

Types of shares

A distinction is made between the type of allocation of the share capital to the individual shares, the degree of transferability and the scope of the rights evidenced by certificates:

• par value shares and no-par value shares
  While par value shares represent a fixed amount of the share capital in euros, no-par value shares represent a percentage of the company's share capital.
   
• Bearer shares, registered shares and registered shares with restricted transferability
  Registered shares are the names of the owners, who are also entered in the company's share register. A special form are registered shares with restricted transferability, the transfer of ownership of which is subject to the consent of the public limited company. In contrast to the registered share, the bearer share is a bearer share, in which the shareholder rights are only linked to the ownership of the paper.
   
• Ordinary and preference shares
  While ordinary shares contain normal shareholder rights, preference shares lack voting rights. To compensate for this, preferential rights in the distribution of profits and the liquidation of a stock corporation are usually guaranteed.

Long-term profitability

Basically, equities are both opportunity and risk securities, as their prices can rise or fall. Their price, the price, is based on the expectations of a company's profits. Due to the different expectations of investors about the future development of a company, it can happen that shares are bought or sold at the same time. Changes in expectations, good and bad news or other external influences can cause stocks to fluctuate to a greater or lesser extent. The price development of shares can be followed in daily newspapers, on television and radio or on the Internet.

In addition to price developments, investors are increasingly paying attention to the level of dividends paid by stock corporations to their shareholders. The relevant key figure for the valuation here is the dividend yield, which sets the distribution per share in relation to the current purchase price.

Compared to other countries worldwide, only a few Germans have discovered the share as a form of investment for themselves. The proportion of owners of shares or fund units is well below 20 percent. This puts Germany at the bottom of the European league. Current figures are also determined and published by the DAI.

Special forms

REITs – Real Estate Investment Trusts – are a special form of share, which almost correspond to a real estate investment due to clear rules for business purpose and profit appropriation.
Exchange certificates: Sometimes it is not possible to trade the original shares. In most cases, this is due to settlement and delivery problems.

Then the shares are offered in the form of exchange certificates, so-called ADRs for American Depository Receipts.

© May 2019 - Deutsche Börse AG