Securities are considered one of the most prominent investment tools in the current era, and this provides the many advantages that it provides to the investor and is not found in the rest of the investment instruments. But before we look at the advantages and disadvantages of this tool, we first give a simplified explanation first of the types of this tool.
First: money market instruments
The capital market or the financial market is defined as the market for the sale and purchase of securities along with long-term investment instruments. It allows long-term financing to generate income through equity and problem of equity, and bonds as credit, which means investment projects and the use of savings to ensure an appropriate return at the lowest cost. These tools are covered in some detail below:
A share is defined as equity in which it represents the right of its owner to a specific share in the ownership of a particular enterprise or project, fixed by legal instruments that can be traded in the secondary financial markets. . . Accordingly, shares are a means of financing the company and the formation of capital and entitles its owner to rights.
Whereas, on the basis of rights and privileges, shares are classified into:
(A) Ordinary shares: This category is characterized by the fact that it does not have a predetermined maturity date. It is, therefore, a source of trust and security for the Corporation. In addition, this instrument provides its owner with the right to participate in the election of the Board of Directors.
- The owner of the shares may nominate himself to participate in the management of the institution as much as he owns shares
- Obtaining a share of the dividends equivalent to the share of the paid-up capital.
However, it should be noted that ordinary shareholders receive their share of the dividends in the case of distribution after the preferred shareholders receive all their rights.
In case of bankruptcy and liquidation of the institution, they are entitled to their rights after all creditors and after counting the preferred shareholders.
B) Preferred Shares: Some investors separate the trading of Preferred Shares as they combine common equity in terms of equity and bonds in terms of obtaining fixed profit at a fixed rate (pre-determined amounts).
The right of the Preferred Shareholder shall be guaranteed whether the result of the Corporation’s business is profit or loss. The maximum that the Board can do with respect to preferred dividends is to postpone them to the following year.
In case of liquidation, the Preferred Shareholder shall receive his share before other ordinary shareholders. Preferred shares are divided in terms of their shareholders’ equity in profits into
- Dividends Preferred Shares: For this section, if the Corporation fails to pay the annual dividend, it will be deferred to the following year.
- Uncollected Preferred Shares: If the Corporation fails to make profits and fails to pay the annual percentage of the Preferred Shares, it shall not be deferred and the shareholder right to this dividend shall be forfeited.