stocks
A share is a security evidencing a share in a stock corporation.
A share is always assigned a certain monetary value. As the owner of shares, you are therefore an investor and acquire a part of a company. In Germany, corporate forms whose equity is securitized in the form of shares are the stock corporation (AG) and the partnership limited by shares (KGaA). Shares are mainly bought and sold on stock exchanges, although there may also be private sales. These then take place over the counter. They form the basis of many investors' portfolios.
Key points
- Stocks are shares in a company.
- Companies receive capital: an IPO provides access to the capital market. Fresh capital can be raised through the subsequent placement of new shares on the stock exchange.
- The trading of shares mainly takes place on stock exchanges.
Why shares and stock corporations?
Corporations were invented to provide financing for expensive and risky projects.
For example, in the U.S., when the western part of the country was opened by building new railroads, these were very expensive and risky projects. No one person could or wanted to undertake such a project alone. Therefore, groups of investors got together and founded a joint stock company by jointly paying in capital. This then had the purpose of using the capital to implement the construction project of a new railroad line. As soon as this project had succeeded, the shareholders received the profit accruing from the operation of the rail line in the form of dividends and were thus able to increase their assets, generate dividend income, create jobs and advance the country's infrastructure at the same time.
Example: Capital through shares
To pay for a company's machinery, employees, and buildings, one million shares are issued. The money collected, coming from the shareholders, is used to build up the company. In the following year, a profit of EUR 1 million is already generated. Since one million shares were issued in the IPO in our example, the profit per share is EUR 1.
Rights of a shareholder
The German Stock Corporation Act regulates the rights and obligations for all investors. In addition to the legal basis, further regulations can also be laid down in the articles of association of a stock corporation.
- Administrative rights of the shareholder
- Participation in the Annual General Meeting (Section 118 (1) AktG)
- Right to vote (Section 134 (1) AktG)
- Right to information (§ 131 AktG)
- Right to challenge resolutions of the Annual General Meeting (Sec. 243 AktG)
In principle, a company is not obliged to distribute profits. However, if profits are distributed, each shareholder has the right to a profit in proportion to his shareholding. The higher the shareholding, the higher the dividend payment, i.e. the amount to be distributed. Furthermore, at the Annual General Meeting, the actions of the Executive Board and Supervisory Board are approved. Shareholders can thus express their confidence in the company's management or withdraw their confidence.
- Shareholders' property rights
- Dividend claim (§ 58 (4), § 60 AktG)
- Entitlement to a share in the liquidation proceeds (Sec. 271 AktG)
- Subscription right in the event of a rights issue (Section 186 (1), ) Subscription right in the event of a capital increase. (Sec. 211 AktG)
Duties of a shareholder
- Financial obligation
- The subscribed shares must be paid for.
- Fiduciary duty
- Consideration of the interests of the company.
In the case of an IPO, a company may also impose a so-called holding period, which stipulates how long the shares must be held after the IPO. This is often 180 days after IPO (market protection clause). A lock-up period, on the other hand, can be imposed on new shares acquired through a capital increase. In this case, these shares may only be traded after the lock-up period has expired.
Types of shares
Differentiation by... Option A Option B Voting rights Ordinary shares (with voting rights) Preferred shares (without voting rights) Transferability Bearer shares (transferable by purchase) Registered shares (subject to name) Date of issue new shares old shares Company share Nominal value shares No-par value shares
Some companies, such as DAX-listed BMW AG, have issued preferred shares in addition to common shares. As a rule, preferred shareholders do not have voting rights at the Annual General Meetings and therefore cannot actively influence the company. However, they participate in the profits in the same way as ordinary shareholders. In return for the disadvantage of no voting rights, preferred shareholders receive a slightly higher dividend. In other words, they receive preferential treatment when it comes to dividends.
Usually, each shareholder has one voting right per share. There are also exceptions, such as Alphabet B shares. These are not listed on the stock exchange. One B share carries ten times the voting rights.
In the case of registered shares, the names and data of the shareholders are entered in the company's share register. The company therefore knows which shareholder holds how many shares and can, for example, write directly to its shareholders to invite them to the general meetings.
New shares are shares that are newly issued. The money flows to the company. Old shares are bought from a previous shareholder, so the buyer's purchase money flows to the old shareholder.
conclusion
In addition to a stake in a company, shares are also a democratic instrument. Anyone can buy shares at will and thus become a proportionate owner of our companies and share in all future profits of these companies. Shares also make it possible to finance large and risky projects that no one person could undertake alone. Regardless of the number of shares a shareholder holds, he can ask the Executive Board his questions at the Annual General Meeting and thus exercise his right to information. In addition, shares generate the highest returns of all asset classes in the long term and thus help long-term investors to build up their assets enormously.