Types of Shares

If you are investing in the share market it is important to understand the difference between types of shares.

Ordinary shares

Ordinary shares are the most common type of shares and the full name is fully paid ordinary share or FPO.

You may see this abbreviation after the name of the share when you search on your broker’s website.

Generally, when investors talk about shares, you can assume that they mean ordinary shares.

With some companies there can be two classes of share and usually they are called A and B. Generally, the different classes come with different voting rights.

As an investor it is important to know what class of shares you are buying when you make an investment in a stock.

Preference shares

Preference shares are generally superior to an ordinary share in some way, usually because they have first preference or right to a dividend.

Preference shares generally don’t have voting rights.

Some preference shares are convertible, that is, they can be converted to ordinary shares at some stage in the future. These type of shares are also know as hybrids.

For further information on these type of shares, visit our Interest rate securities pages, specifically the page on Corporate Investments.

Contributing shares

Contributing shares are also known as partly paid shares.  These shares are usually issued, such that part of the price that is payable immediately and a balance is then due by an instalment, or instaments payment at a future date. If the company is a no liability company the shares can be forfeited instead.

Contributing shares can be bought and sold on the ASX like any other share, with the future amount owing being carried over to the new owner.

Recently, a number of investors and traders were caught out when they bought shares in a company that had dramatically fallen in value to less than a cent, hoping to make a quick profit. Unfortunately the shares they bought had a $1 instalment due within a short time frame. A lot of people faced financial ruin because of the large numbers of shares they had bought.

This clearly brings home the message that it is imperative that you know exactly what it is you are buying.

Company issued options

Company issued options are options issued by the company that give the holder the right to acquire a certain number of fully paid ordinary shares at a stipulated price at any time in the future up to the expiry date.

While a company issued option can be listed on the exchange, it does differ slightly from other options you may see.  If you exercise the company option, new shares are issued and the company collects the full agreed price of the share from the option holder.