The issuance of common shares is an instrument to obtain long-term capital stock, representing the forms of ownership and, therefore, the payment of dividends for its acquisition is not mandatory
The true owners of the company are the common shareholders who invest their money in the company only because of their expectations of future returns.
The common shareholder is also known by the term "Residual Owner", since in essence it is he who receives what remains after all claims about the company's profits and assets have been satisfied.
This article presents the characteristics of this type of share, the way to raise capital through its issue, its rationale, practical application and the advantages and disadvantages of an issue of this type of stock.
Common action characteristics
An issue of common shares has several main characteristics for obtaining resources
Par value: Common stock can be sold with or without par value. A par value is a value that is given to the stock in an arbitrary manner in the issue certificate.
It is generally quite low, as business owners may be legally liable for an amount equal to the difference between the par value and the price paid per share if it is less than the par value. Companies often issue shares with no par value, in which case they can assign or give you books at the price for which they are sold.
Placement
Common shares are placed directly on the market only when an offer of rights is created and are to be subscribed by the owners of the company
Shares issued and subscribed: An issue certificate must establish the number of common shares that the company is authorized to issue.
Not all issued shares are necessarily subscribed. Since it is often difficult to reform the issuance certificate to authorize the issue of additional shares, companies generally try to authorize more shares than they plan to subscribe. The company may have more common shares issued than are currently subscribed if it has repurchased shares.
- Right to vote: Generally, each share entitles the holder to one vote in the election of directors or in other special elections. Non-voting common shares are occasionally issued when the company's current owners want to raise capital from the sale of common shares but do not want to give up any voting rights. Stock Division: This is usually used to lower the market price the shares of the company. They are often made before a new issue to increase the ease of marketing the shares and to stimulate market activity. Dividends: The payment of corporate dividends is at the discretion of the board of directors. Dividends can be paid in cash, shares or in kind. Re-acquisition of shares:The shares that have been repurchased by the company are called treasury shares.
This is done to change its capital structure or to increase owners' returns. The effect of the repurchase of common shares is similar to the payment of dividends to shareholders.
- Distribution of profits and assets: The holder of the common shares has no guarantee of receiving any kind of periodic distribution of profits in the form of dividends, nor has any kind of guarantee in the event of liquidation. The common shareholder must view the company as a going concern and if you change your mind there are opportunities to sell or dispose of your securities.
Accounts are sold at a discount as the factor accepts credit risk rates and generally cannot charge the borrower anything if an account turns out to be bad
- Rights of both shares
This gives purchase privileges of certain common shares to existing shareholders. This is an internal financing tool and a control system in the organization.
- Subscription rights: The issue of common shares gives shareholders purchase rights that allow them to maintain their proportional ownership in the corporation when new issues are made. These rights allow shareholders to maintain their control of the vote and prevent the dilution of their property and profits.
Mechanics of both right offerings: When the board of directors makes an offer of this kind, it sets a closing date for shareholder registration, which is the final date on which the person receiving a right must be the legal owner indicated in the company ledger.
Core values of common action
The value of a share of common stock can be calculated in several ways. They have book value, liquidation value, market value, and intrinsic value. The book value and the liquidation value do not reflect the value of the company as a going concern, but rather consider the company as a conglomerate of assets and liabilities with no ability to generate profits.
The book value calculates the value of the common share as the amount per share of the contribution of common shares that is indicated in the Balance Sheet of the company.
The liquidation value is based on the fact that the book value of the company's assets is generally not equal to its market value. It is calculated by taking the market value of the company's assets, subtracting from this figure the liabilities and claims of the preferred shareholders and dividing the result by the number of shares of common capital in force.
The actual or intrinsic value of a share is finding the present value of all expected future dividends per share during the supposedly infinite life of the company.
Advantages of joint action
The basic advantages of common stock come from the fact that it is a source of financing that imposes a minimum of restrictions on the company. Since there are no dividends to be paid on the common stock and failure to pay does not compromise receipt of payments by other security holders, financing the common stock is quite attractive.
The fact that the common action has no maturity, eliminates any future cancellation obligation, increases the convenience of financing the common action.
Another advantage of joint action over other forms of long-term financing is its ability to increase the company's lending capacity. The more common shares a company sells, the greater the equity base and, consequently, long-term debt financing can be obtained more easily and at lower cost.
Dividends
A company can distribute more money in dividends than it earns in a given period if it has enough available and retained earnings
Disadvantages of joint action
The disadvantages of financing common stock include dilution of voting rights and profits.
Another disadvantage is the high cost it has, this because the dividends are not tax deductible and because the common stock has more risk than the debt or the preferred stock.
