The common share is a portion of the share capital of a company that, in short, offers the benefit of voting at corporate meetings to all its holders.
Like the other shares in Brazil, the common share is also nominative (that is, it requires the identification of its owner in the Book of Records of each company) and can be found in both private and public companies.
Together with the preferred shares, it comprises the category of shares organized by the level of participation of the holders.
What does that mean? That what makes them unique (and essential in the studies of an investor) is the degree of influence it offers, within the organization, to those who own it.
What are the main characteristics of an ordinary share?
The main characteristic of the common share and for which it is most commonly identified is the voting right that it grants to its holder.
In other words, the person who holds such an action has the power to influence the decisions made in the company and choose who manages it. Even if exercising it poorly, in cases of small volume of quotas, it is guaranteed participation and voting in corporate meetings.
In the financial market, the common share is easily recognized for having the suffix 3 in its codes.
For example, the PETR3 code designates all of Petrobras’ common shares available on the Stock Exchange. HGTX3 and BBDC3, in turn, belong to Hering and Bradesco, respectively. The VALE4 code is intended for Vale’s preferred shares.
In order to acquire them, in the case of publicly traded companies, it is necessary to have an active account with a brokerage house to then place the purchase order and complete the possession.
In the case of privately held companies, the process may be even easier or more difficult. It looks confusing, right? But the truth is that the degree of difficulty of the negotiations will depend on the relationship between (potential) seller and buyer. This is because each shareholder has autonomy (according to the rules of the company’s by-laws, of course) to trade their shares directly.
What are the advantages of investing in common shares?
At first glance, when it comes to common shares, it is impossible not to consider the benefit of the vote.
The institutional sustainability of an organization is a fundamental factor for the success of a financial operation. After all, the shareholder is practically a partner in the company: its bankruptcy means the devaluation of its assets and generates losses; whereas, growth is synonymous with the appreciation of securities and increased profits.
That is, the success of one is directly linked to the other.
Therefore, having the possibility to vote and influence (even if minimally) the direction of a company is a great power. You, as an investor, directly contribute to the company’s decisions to be assertive when voting. It is active in your investment!
In addition, the Brazilian Corporate Law (which governs common shares) establishes that:
- The ordinary shareholder is not responsible for the company’s debts;
- In the event of a sale of the company, the ordinary shareholderhas the right to receive at least 80% of the amount received by the controlling shareholder for his shares.
What are the disadvantages of investing in common shares?
What is considered a boon for preferred shareholders, becomes a real source of risk for ordinary shareholders.
This is because, while preferred shares have priority in receiving dividends and interest on equity, ordinary shareholders do not have this prerogative.
And, in case of liquidation, the primacy declines even more, since creditors and preferred shareholders are passed over in all refunds.