July 09, 2025
4 mins read
Common stock, or ordinary shares, is a simple type of equity investment. When individuals say that they own a part of a firm, this is what they normally mean. Such shares carry a few principal rights, including having a say in major company decisions and receiving a portion of the profits.
The way ordinary shares behave under varying financial circumstances is what makes them unique. For instance, shareholders may vote on company issues, allowing them to have a voice in the business's operation. In rare circumstances when the company ceases operations, ordinary shareholders have the last claim on whatever remains once debts are settled and paid to the preferred shareholders.
Ordinary shares are a common form of shares a company issues. The more shares you have, the larger your share in the company. Assume that a company has 50 total shares, and you possess 30 of them; that means you have a 60% interest in the business.
Holding ordinary shares has several advantages. You are entitled to vote in the annual general meetings of shareholders, allowing you to contribute to the company's direction. You may also receive dividends, contingent upon the business's success.
Another advantage is that such shares do not expire. You'll continue to be a shareholder until the business is acquired or chooses to leave the stock exchange.
Characteristic | Description |
Voting Rights | Ordinary shareholders can vote on key company matters, like electing board members or approving major business decisions. |
Residual Claims | If the company shuts down, ordinary shareholders receive what’s left of the assets, but only after all debts and preference shareholders have been paid. |
Dividends | They may receive a share of the company’s profits as dividends, but this is not guaranteed and depends on the company’s performance and management's decision. |
Ordinary shares are easily bought and sold on stock markets, offering investors the flexibility to trade as needed. |
According to Section 43 of the Companies Act, 2013, shares are broadly classified into two categories:
These are the commonly issued shares by public companies when they need to raise money. If you own ordinary shares, you’re considered a part-owner of the company. You also receive voting rights, can attend annual meetings, and may be entitled to a share of the profits if the company performs well.
These come with special privileges. Preference shareholders receive priority in receiving dividends and are prioritised over ordinary shareholders when it comes to returning capital in the event of a company shutdown or liquidation.
For a clearer understanding, let's examine the advantages and disadvantages of ordinary shares.
Investing in ordinary shares carries risks, but there are also numerous reasons why many investors opt for them. Here are some of the key advantages:
The more shares you own, the bigger your slice of the company. This ownership not only represents your share in the business but also gives you influence and potential profits.
One of the main attractions of ordinary shares is the chance for capital appreciation. As the company grows and performs well, its share price tends to rise. This means you could sell your shares later at a higher price and make a profit.
Ordinary shareholders typically have the right to vote on major company matters, such as mergers, new policies, or the election of board members. Typically, each share is equal to one vote. Can’t make it to a meeting? No worries—you can vote by proxy and have someone else vote on your behalf.
Many companies distribute a portion of their profits to shareholders in the form of dividends. While dividends aren’t guaranteed, companies with a strong track record often pay them regularly, typically on a quarterly, semi-annual, or annual basis. This can be a great way to earn passive income in addition to any capital gains.
Adding ordinary shares to your investment mix can help balance risk. By spreading your investments across different companies, sectors, or even countries, you’re less likely to be badly affected if one area doesn’t do well. Shares play a key role in creating a well-rounded portfolio.
While ordinary shares can offer great rewards, they also come with their share of risks. It’s important to understand these potential downsides before investing:
The stock market can be unpredictable. Economic slowdowns, political instability, or changes in interest rates can all lead to a drop in share prices. Even if the company is doing well, broader market trends can still affect your investment.
The value of your shares depends heavily on the company's performance. If the business faces challenges such as poor leadership decisions, financial difficulties, or intense competition, its stock price could decline, potentially impacting your returns.
Ordinary shares are generally easy to buy and sell. However, if you’ve invested in a smaller or less popular company, you might struggle to sell your shares at the price you want, especially if there aren't enough buyers.
Share prices can fluctuate significantly, sometimes in just a matter of hours or days. This can be stressful for short-term investors or those who aren't comfortable with sudden changes in their portfolio value.
Dividends are a nice bonus, but they’re not guaranteed. Companies can reduce or skip dividend payments based on their financial health or future plans, so counting on them for steady income can be risky.
Take a look at the differences between ordinary shares and preference shares
Features | Preference Shares | Ordinary Shares |
Voting Rights | Usually, no voting rights | Come with voting rights |
Dividend Priority | Get dividends before ordinary shareholders | Paid after preference shareholders |
Dividend Type | Fixed dividend amount | Variable dividend based on company performance |
Payment Frequency | Paid monthly, quarterly, or annually | No fixed schedule; depends on profits and board decisions |
Risk Level | Lower risk due to fixed income | Higher risk due to uncertain returns |
Benefits of Business Growth | Do not benefit from increased profits | Can receive higher dividends if the company performs well |
Payout During Liquidation | Priority over ordinary shareholders | Paid only after the preference shareholders during liquidation |
Ordinary shares offer a mix of growth potential, income opportunities, and ownership perks. However, like all investments, they come with risks. Understanding the potential downsides, such as market fluctuations, company performance, and dividend cuts, can help you make more informed and balanced investment decisions.
So before you dive in, think about your financial goals, how much risk you’re comfortable with, and how long you plan to stay invested. Making informed choices can help you build a stronger financial future.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Bajaj Broking Financial Services Ltd. (BFSL) makes no recommendations to buy or sell securities.
Share this article: 
Ordinary shareholders can vote on important matters, like electing directors or approving major decisions. They may also receive dividends when the company decides to pay them. If the company shuts down, they get whatever is left after all debts and preference shares are settled.
The value of ordinary shares is determined by the collective sentiment of potential purchasers and sellers regarding the company's expected future earnings and growth potential. When investors believe that the company is expected to have greater earnings and growth potential, they will pay higher prices for ordinary shares, and vice versa.
No. Ordinary shares and preference shares are two separate and distinct categories, so ordinary shares will always remain ordinary shares, and preference shares will remain preference shares.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Enjoy low brokerage on delivery trades
|
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
