Voting Rights
One of the additional elements to consider when purchasing shares is whether you are concerned about having the right to vote on crucial company governance issues or indeed be involved in the election of members to the board. There are two main classes of shares, one which does entitle the holder of the shares to a say in some company matters and one which does not. The voting shares, generally known as 'common' shares, and the non-voting shares, often referred to as 'preferred' shares, may be perceived as being worth different amounts by buyers and sellers as they both have unique properties.
Common Shares
Common or voting shares, sometimes also known as 'ordinary' or 'Class A' shares, are the most common type of share available on the open market. They may be bought from a seller or direct from a company undertaking an initial public offering (this occurs when a previously unlisted company decides to float their business on the stock-market in order to raise funds), a bonus issue or a rights issue. These shares give the owner the right to vote on policy raised at the Annual General Meeting (AGM) as well as to vote on the election of the board.
In most cases votes are allocated in a 1:1 ratio with the number of shares owned, so that for every company share a shareholder has in their portfolio they are entitled to a single vote. Shareholders who have 25% of the company shares would therefore make up 25% of the overall vote, and so forth. Voting shares are also a focus point when a company or investor tries to launch a hostile takeover of another company - having a majority share essentially hands over the control of the company.
Preferred Shares
Preferred shares, known also as 'non-voting', 'preference' or 'Class B' shares, are not as common as their 'Class A' relatives. They do not entitle the owner to any voting rights but they do give the owner preference over 'Class A' shareholders when the time comes for dividend pay-outs or the liquidation of the company's assets in the event of a bankruptcy. Sometimes the shareholder's rights to a dividend pay-out may be allowed to accumulate.
It's important to note that not all preferred shares are the same, with some companies releasing different variations of preferred shares periodically as a preventative measure against hostile take-overs. The Certificate of Designation that is given along with the purchase of company shares will state the exact rights the shareholders are entitled to and the conditions under which the shares are owned.
Convertible Preference Shares
Although by no means as common as the Class A and Class B share types, there is a third class of share that investors may be interested in. Convertible preference shares are an upgradable version of the Class B share that allows the holder to convert their shares in to voting shares - though not always at an equal turnover rate. Again, purchasers of these convertible shares should check the Certificate of Designation for further terms and conditions.