Ordinary shares
Ordinary shares are sometimes known as ‘common stock’. Gives holders the right to vote at meetings as well as take dividends from the company’s profits. Voting rights mean you have a say on issues such as salaries and the future direction of the business. Although you do have the right to dividends when they are paid, companies are not obliged to distribute them should a decision be made to the contrary. This may be because profits are lower than expected, or because it has been decided that these profits are to be reinvested straight back into the business to fuel further growth instead.
Preference shares
Preference shares come with no voting rights but they do provide an advantage over ordinary shareholders when it comes to receiving dividends. Preference shareholders are first in line for dividend payments, both when the business is operating, and also in the event of the company entering liquidation in the future. Dividend payments for preference shareholders are often at an agreed level and are made at defined points throughout the year. Due to this preference shares are often seen as a less risky investment, although payment amounts may be lower in light of this. Should the company experience a period of growth with profits to match, preference shareholders will not see the benefit in this when it comes to receiving their dividend payment. However, this works both ways, and many individuals investing in this way appreciate the element of certainty that comes with it.