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Registered shares are securities issued in the name of a specific person and registered in the register of a shareholder company. In other words, these shares must bear the name of their owner.

The specified person is a full member of the company's board of shareholders.

The sale and transfer of registered stocks occurs in two ways

1. Entering information about the change of owner into the company register, issuing the corresponding certificate to the new shareholder

2. Applying an endorsement on the certificate itself, after which it is also necessary to enter it into the register.

In addition to the data of the new owner, it is also necessary to indicate the date of transfer and confirm it with the signature of an official. The endorsement on the reverse side of the share is called an endorsement.

Naturally, they have value only when they are in the hands of a registered owner, in contrast to bearer shares, the owner and beneficiary of which can be absolutely any unregistered person. The main purpose of the existence of registered shares is strict accounting of the company's shareholders and the avoidance of attracting unwanted capital to the company.
Actually, at the birth of the securities market, there were only registered shares.

Of course, if a company issues exclusively registered shares, and not preferred ones, this significantly increases its prestige.

Types of registered shares

A subtype of registered shares is vinculated shares. They can be transferred to third parties only with the permission of the issuer - company, joint stock company. The purpose of their issue is precise control over the composition of shareholders. Essentially, this is a tool for prohibiting the sale and transfer of shares to undesirable persons.
Preferred shares are also registered; their owners have the right to receive dividends in a fixed and priority manner. A subtype of preferred shares are convertible shares that can be exchanged for ordinary shares at a predetermined ratio.

Registered ordinary (common) shares mean that their owners receive dividends on a residual basis after holders of preferred shares.
Another type of registered shares is convertible - they can be exchanged for ordinary and preferred shares at a strictly fixed price within a specified period.

A preferred share, unlike an ordinary share, does not give the right to vote at the general meeting of shareholders, and the privileges of the owner of such a share are that the charter must determine the amount of dividend and/or the cost paid upon liquidation of the company (liquidation value), which are determined in a fixed amount of money or as a percentage of the par value of preferred shares. However, the law defines cases when the owner of a preferred share receives the right to participate in the general meeting of shareholders with the right to vote when resolving issues:

on the reorganization and liquidation of the company;
on introducing amendments and additions to the company's charter, limiting or changing the rights of shareholders and owners of preferred shares.
The owner of preferred shares also receives the right to vote if at the annual meeting of shareholders a decision is made on non-payment or incomplete payment of established dividends.

The law on joint stock companies provides for the issue of one or more types of preference shares. There are two types of preferred shares: cumulative and convertible.

Cumulative shares are those for which the unpaid or incompletely paid dividend, the amount of which is determined in the charter, accumulates and is paid subsequently. The issue of such shares can attract investors with the opportunity to increase their income. If the owner of a preferred share of this type decides to sell it if dividends are not paid, he will be forced to sell it at a low market value. Whoever bought such a share has the opportunity to receive dividends for the entire period during which they were not paid.

The owner of a cumulative preferred share receives voting rights for the period during which he does not receive a dividend, and loses this right from the moment all accumulated dividends on the specified share are paid in full.

When issuing convertible preferred shares, the possibility and conditions of their conversion into ordinary shares or other types of preferred shares must be determined. When issuing convertible shares, the period, proportionality and exchange rate must be established. The exchange period for convertible shares must be at least three years. The conversion rate is set at the time such shares are issued and is slightly higher than the current market price for the common shares at that time. Therefore, if during the established exchange period the current market price of common shares exceeds the conversion rate, the owner of a convertible preferred share has the opportunity to receive additional income by exchanging his share at the conversion rate and immediately selling it at a higher rate. This option allows the issuer to set a lower dividend on convertible preferred shares than on other types of preferred shares. If the exchange period has expired and the owner of the convertible preferred share has not exchanged it for any other share, it is recognized as a direct (simple) preferred share.

The charter may give the owner of a convertible preference share the right to vote at a general meeting of shareholders, and the number of votes must correspond to the number of ordinary shares for which his preference share is exchanged. By law, a joint stock company can issue two or more types of preferred shares. Revocable, or returnable, preferred shares have become widespread abroad. Their essence is that they can be redeemed, unlike ordinary ones, which cannot be redeemed as long as the joint stock company that issued them exists. A joint stock company can provide revocation or repayment in different ways:

Redemption with a premium. The premium acts as a kind of compensation to the investor for losing his source of income. In this case, the repurchase can occur in full at any time after notification of the repurchase or in parts within a specified period. Redemption occurs at a price that is set above the face value, taking into account unpaid dividends.
Redemption through buyout or deferred funds. The formation of a redemption fund makes it possible to annually repurchase a certain part of revocable preferred shares through the secondary market and thereby help stabilize the market for one’s shares. A deferred fund is formed by a joint stock company in order to make redemptions at a premium.
Providing guarantees for early redemption at the initiative of the holder through the issuance of so-called retractive preferred shares. Their issuance is resorted to when the issuer does not have absolute guarantees of recall of preferred shares through redemption through redemption. When issuing these types of preferred shares, the holder himself sets the redemption period, notifies the issuer about this and presents them when the redemption period arrives.

A joint stock company may issue preferred shares with a participation interest. Such shares entitle its owner not only to a fixed dividend established upon its issue, but also to an additional dividend if the dividend on ordinary shares at the end of the year exceeds it.

In foreign practice, preferred shares with a floating dividend rate, focused on the yield of any generally recognized securities (for example, in our practice, on the yield on GKOs), are becoming widespread.

Guaranteed preference shares may be issued. Such shares may be issued by subsidiaries. In this case, the dividend on preferred shares is guaranteed by the reputation of the parent organization. This should attract investors to purchase shares in the subsidiary.

In Russia, there are specific preferred shares: types A and B. They appeared during total privatization. Preferred shares of type A were issued during the creation of open joint-stock companies and were intended for employees of the transformed enterprises, who received them free of charge. The number of preferred shares of type A is 25% of the authorized capital, and 10% of net profit is allocated for the payment of dividends on these shares. These shares give owners the right to attend annual meetings of shareholders and make proposals on issues discussed, but do not give them voting rights. The owners of such shares have the right to freely sell them.

Preferred shares of type B were issued against the share of the authorized capital owned by the property fund, and the property fund became the owner of such shares, which also received them free of charge. To pay dividends on such shares, 5% of net profit is allocated, but the size of the dividend on them should not be lower than the dividend paid on ordinary shares. The number of such shares should not exceed 25% of the authorized capital. The Property Fund, which is the holder of shares of this type, has the right, without the consent of other shareholders, to freely sell them to an unlimited number of buyers, however, upon their sale, they are automatically converted into ordinary shares. The holder of type B preferred shares does not have voting rights, although he can attend shareholder meetings and make proposals on the issues discussed.

According to the new legislation, preferred shares can be given a number of properties. Thus, the charter of a joint stock company may provide for the issue of cumulative shares. The cumulative property implies that dividends or a certain part of them in the event of non-payment accumulate and are fully paid subsequently.

Another property of preferred shares is conversion. In this case, the owner of a preferred share is given the right to exchange it for a share of another type. In this case, the charter may provide for the right to vote on such preferred shares.

So, preferred shares:

practically risk-free;
their dividend rate may even exceed the rate on ordinary shares;
but they do not allow the owner to participate in the management of the organization.

Preferred shares are a common financial instrument in Russia and around the world. It allows the owner to receive a guaranteed income based on the dividend rates offered by the issuer of the securities.

Also, in some cases, the holder of such shares can influence the company’s development strategy. What are the distinctive features of preferred assets in relation to bonds and securities classified as ordinary? What advantages does the owner of this type of shares have? What are the possible restrictions on his rights in relation to participation in the management of the company?

Definition

Preferred shares are securities whose holders have an expanded range of rights compared to holders of ordinary assets. However, even taking into account the special status of the owners, some restrictions are possible. Enterprises that issue preferred shares generally set themselves the same goal as when issuing ordinary securities - raising funds to replenish the authorized capital. An interesting property of the shares in question is that they have a number of features that are also characteristic of bonds.

Another factor is that preferred shares of a joint stock company can be issued due to the company's desire to achieve a balance between its own capital and external capital - without increasing the number of security holders who have voting rights (we will consider this aspect further). Thus, the assets in question are becoming quite popular among Russian entrepreneurs.

Features of preferred shares

Preferred shares can have a number of advantages for investors when compared to regular securities. What possible preferences for the holder can we talk about?

Firstly, the owner of preferred shares is almost always guaranteed some income.

Secondly, funds for the payment of dividends are allocated to the holders of such securities as a matter of priority (this is especially important in cases where, for example, a company is liquidated but obligations remain).

Thirdly, dividends on the shares in question are usually fixed in the total net profit. At the same time, preferred securities, as a rule, do not allow the owner to participate in the management of the company or “vote” for any decisions. Another nuance is that shares of this type, as a rule, have less potential in terms of price growth. However, the holder of such shares is de jure a co-owner of the company. Despite the fact that the holder of such securities does not have voting rights, he can participate in shareholder meetings and claim a share of the property upon liquidation of the organization.

Holder Rights

Let's study the aspect reflecting the rights of owners of preferred shares. The securities in question are equity securities. That is, they have signs of similarity to ordinary shares. Holders of preferred securities, along with the main shareholders, receive a share in the authorized capital of the company, and, as we said above, have the right to attend general meetings.

At the same time, there may be additional conditions for the relationship between the issuer of shares and their acquirers. This is usually specified in the contract. It is entirely possible, by the way, that the company will still allow the holder of preferred securities to vote. True, in many cases this in practice means that the “weight” of the vote will be, rather, nominal.

By the way, the laws of a number of countries, including Russia, explicitly state that preferred shares can be issued with or without voting rights. In some European countries, mechanisms are provided under which the owner of a security of this type can, under a number of circumstances, even receive double voting rights (for example, if the share is registered and has been held for a long time).

Admission to voting

However, in general, the rights of holders of preferred shares do not allow them to vote. An exception may be cases when decisions made during the relevant negotiations affect the personal interests of the owners of securities.

In particular, Russian legal acts regulating the issue of preferred shares state that if particularly important issues are on the agenda of the meeting, holders of preferred assets can vote. Which ones exactly? These may be issues reflecting the procedure for a possible reorganization of the company or liquidation of the company, those related to making adjustments to the Charter, those related to the rights of holders of preferred shares or, for example, the payment of dividends. Many experts consider those related to the liquidation value and new issues to be particularly important issues.

Ordinary and preferred shares have one important difference in terms of the rights of their owners. The point is that obligations under securities of the second type are fulfilled by the issuer on a priority basis.

Dividends are first paid to the holders of preferred shares, and only if there are enough property and other assets of the company, settlements with holders of ordinary securities occur.

During liquidation, and we have already noted this above, the same pattern occurs. True, in this case, other subjects of financial relations - creditors and bondholders - have even greater priority. Obligations to them when the company is liquidated are paid off first.

Classification of shares

What are the types of preferred shares? Economists highlight the following. There are cumulative preferred shares. Their peculiarity is the accumulation of dividends - they are not subject to periodic payment.

There are, in turn, non-cumulative securities. Their specificity is that dividends that are not paid do not accumulate.

There are participating preferred shares. Their holder has the right to receive increased dividends if the value of the ordinary type of securities exceeds a certain level.

There are also convertible shares - they can be converted into other types of securities.

There are revocable assets (also called redeemable assets). They are characterized by the presence of an obligation of the company to the holder in the form of mandatory repayment within a certain period.

Some types of preferred shares may be characterized by the possibility of changing dividend rates - in which case they form a separate type of securities.

If the obligations to make payments to shareholders are legally carried out not by the issuer, but by another company, then this type of asset is classified as a guaranteed one.

There are also shares in which the option rule applies - this allows the owner of the security to sell it to the issuer at a set price.

Emission

As a rule, joint stock companies have the right to issue several types of preferred securities at once. Moreover, each type of shares may differ in both the nominal value and the amount of dividends, the timing of their payments, etc.

However, if a company intends to issue several types of preferred securities, then its constituent documents must reflect information about the priority of dividend payments for each type of asset. Also, this type of source should specify the rights of holders of preferred shares. In particular those that reflect the right to vote.

We noted above: despite the fact that the owners of this type of securities, as a rule, cannot vote, this kind of preference in a number of cases is still allowed by the issuer. However, this is not always connected with the main purpose of the issue, namely attracting additional capital.

In some companies there is a practice - the issue of shares is initiated mainly with the aim that the founders will receive the voting right. That is, the holder of the security thus becomes both a full-fledged subject of enterprise management and a person who has privileges when paying dividends. However, as many experts note, such a scheme is rather an exception to the rule, since investors may not like this kind of fraud.

Difference from bonds

We said above that preferred shares reflect an intermediate position between ordinary securities and bonds.

How does this translate in practice? The main criterion for differentiation here is the status of the holder. As we have already noted, the owner of a share is one of the owners of the company.

In turn, the bondholder, from a legal point of view, is a creditor. In the first case, dividends are paid on preferred shares, in the second - interest payments.

The company's obligation to pay the holder of preferred stock is relatively conditional. That is, if, say, a company goes bankrupt, and the remaining assets are not enough to pay off the holders of securities, the shareholder will not be able to recover what is due through the court. In turn, the bond owner has every right to claim his debt in court.

Legislative aspect

What are the features of the legal regulation of the issue of preferred shares in Russia? It can be noted, for example, that the legislation of the Russian Federation contains a number of restrictive norms. In particular, the share of preferred shares in Russian enterprises, based on their nominal value, may be no more than 25% of the total authorized capital of the company.

The number of units of securities has no practical significance. It may well turn out that the par value of preferred shares will be greater than the same figure for ordinary assets. And therefore the share of such securities, calculated in real amounts, will exceed the percentage expressed in the number of units of shares.

Dividends

One of the criteria for classifying the securities in question is the method of calculating dividends. There are shares where the corresponding payments are fixed, and there are those that allow additional accruals. In the first case, the size of the dividend on preferred shares thus remains constant throughout the entire contract period. The amount of profitability is methodologically determined either in monetary terms or as a percentage of the current value of the security.

The generally accepted characteristic of the shares in question among experts is fixed income. That is, the case when dividends are accrued at floating rates is rather an exception. At least the first option appeared historically earlier. In the stock markets of developed countries, as soon as the corresponding financial institutions appeared, preferred securities were issued only with a constant dividend amount. It’s the same now: in many countries, legislation requires issuers to issue shares of this type with a fixed income.

In some cases, it is possible that the securities will have an adjusted dividend amount based on proportionality with the yield of shares issued by the state. For example, if the corresponding payments require a quarterly frequency, then their size is tied to the corresponding volatility for government bonds. This mechanism is used by companies mainly to reduce risks.

There are types of preferred shares in which the dividend rate is determined by auction. In practice, this mechanism looks like this. The broker company (or bank) that carries out the placement of shares conducts auctions for the purchase and sale of securities of the corresponding type at a given frequency. Those who wish to buy assets submit applications indicating the required number of units of shares, as well as the expected amount of dividends.

Having collected all applications, the broker calculates the optimal return on the securities. The go-ahead to sell shares is given only to those applicants who have set dividend rates lower than those determined by the broker. In this case, all auction winners receive shares with the same level of profitability.

Some experts believe that this type of securities is one of the most attractive for Russian investors. However, according to analysts, there is also some drawback in such a scheme - there are not always a sufficient number of buyers for the shares, as a result of which the level of profitability on applications calculated by the broker may be too high for the issuer or the intermediary itself.

At the same time, the option of issues is also popular in Russia, in which dividends on preferred shares are paid at floating rates, usually tied to the company’s net profit.

Where can I buy

How to become an owner of preferred shares? Most large companies are, in principle, interested in selling their assets to as many buyers as possible. And therefore now there are no problems with, for example, purchasing preferred shares of Sberbank or Gazprom from numerous brokers.

As an option, you can use the public resources of one of the exchanges on which the relevant securities of large companies are traded in free circulation - for example, the MICEX. Preferred shares of Sberbank, like other financial instruments of this kind, have a guaranteed return (about 4-5%) and a relatively low cost - about 50 rubles per share.

In the United States, corporations are more often the buyers of preferred shares, as thanks to this they receive a 70% reduction in property taxes. In Ukraine, in accordance with the Law “On Business Companies”, issuers can issue preferred shares in the amount of no more than 10% of the authorized capital.

Preferred shares occupy an intermediate position between ordinary shares and bonds. Their prices are more responsive to changes in interest rates than the prices of the common shares of the companies that issue them.

Types of preferred shares : 1 Cumulative – contain a clause on the cumulative nature of dividends - this is a parameter for the issue of preferred shares, which means that all unpaid dividends will be paid in full before the dividends are distributed among the owners of ordinary (common) shares. A non-accumulation clause is a condition of the issuance of preferred stock that gives the issuer the option to avoid refunding any unpaid dividends. Cumulative shares are highly valued by the market, which leads to an increase in the price and a decrease in profitability.

2 Subject to participation is a characteristic of the issue of preferred shares that allows their owners to receive additional dividends when dividend payments on common shares exceed some predetermined level. Sometimes this parameter for issuing preferred shares is interpreted this way: when a joint stock company does not pay dividends for more than three years, the owner of two preferred shares receives one vote at the general meeting of shareholders.

3 Reviews - these are issues that contain a condition for early withdrawal by the company for redemption. They are used when the market rate of return decreases significantly. These shares are bought back at a premium.

4 Preferred shares with redemption fund – such an issue establishes the procedure for redemption of the issue or the schedule for its redemption from circulation; have lower profitability.

5 Convertible – shares that can be exchanged for common stock or bonds of the same company .

6 With a floating dividend rate – These are stocks whose dividend rates are adjusted periodically according to the yield on Treasury securities. At the same time, the maximum and minimum dividend rates are set.

Preferential or priority - this is a type of preferred shares that are distinguished by their priority nature for receiving dividends and to the assets of the company in the event of its liquidation.

They are designated by the symbol pr.

In our country, legislation does not define the types of preferred shares. With the adoption of the Law “On Joint Stock Companies” the situation will change for the better. In the meantime, joint stock companies are supplementing the current legislation with statutory amendments.

1.5 Valuation of ordinary shares. Fundamental Analysis

Traditional analysis is based on the assumption that investors are able to estimate the future performance of common stocks. It starts with economics, then moves on to sectoral and fundamental analysis. Economic analysis

aims to assess the overall health of the economy and its potential impact on securities returns. When conducting it, the business activity cycle (GDP dynamics, industrial production volume, etc.) and the main economic factors are studied:

inflation;

tax and monetary policy;

exchange rates;

consumer spending;

investments in business development;

cost and availability of energy resources. This is the study and classification of economic sectors in order to assess the competitiveness of a particular industry in comparison with others and identify companies within it that have special development prospects. There are different industries:

emerging;

growing;

mature or stable;

leaving.

Fundamental Analysis is an in-depth study of the financial position and results of the company’s economic activities. He proceeds from the fact that the cost of an ordinary share is influenced by the performance of the company that issued this share. To carry it out, the company's financial statements are studied. A complete set of financial statements includes reports:

about economic results;

about cash flow;

on changes in share capital;

balance.

The reports are examined in comparison with the company's basic indicators for previous years and the results of economic activities of other companies in the industry. The focus of a potential investor should be on the following indicators:

Profitability ratio:

where π h – net profit;

TR – sales volume.

Turnover ratio:

, (1.6)

where A is the value of assets.

Earnings per share:

EPS=
, (1.7)

where EPS is earnings per share;

n – number of common shares in circulation.

4 Cep ratio (price-earnings multiple of earnings) or P/E:

P/E= , (1.8)

where P/E is the price-earnings ratio;

P – stock price.

The P/E ratio is the ratio of the stock price to the earnings per common share.

The P/E ratio is the most important statistical characteristic of a stock. It shows how many years it takes to pay back an investment in that share through earnings per share. Therefore, it will be better for the investor if this indicator of the stock he is interested in is lower than the industry average.

In high-tech sectors of the economy, the price-earnings ratio is more than 25, and in the public utilities sector it is 6-8.

Ratio to par value:

, (1.9)

γ is the ratio of the stock price to its par value;

P 0 – par value of the share.

It is necessary to compare these indicators with the industry average. If they are higher and should be higher, then we put a “+” sign, if lower, we put a “-” sign; if they are lower and should be lower, we put a “+” sign, if higher – “-”. If there are more pros than cons, you can invest. Then you need to collect information about the quality of management in the company and check with the broker for the latest information about the company.

1.3 Preference shares (cumulative and convertible)

A preferred share does not give the right to vote at the general meeting of shareholders, and the privileges of the owner of such a share are that the charter must determine the amount of the dividend and (or) the value paid upon liquidation of the company (liquidation value), which are determined in a fixed amount of money or as a percentage of the par value of preferred shares.

The Law on Joint Stock Companies provides for the issue of one or more types of preference shares.

The law distinguishes two types of preferred shares: cumulative and convertible.

Cumulative shares are those for which the unpaid or incompletely paid dividend, the amount of which is determined in the charter, accumulates and is paid subsequently.

For example, if during the issue of preferred shares it was established that the dividend on them is paid in the amount of 14% of the par value, and by decision of the general meeting of shareholders it is not paid this year, then in the next calendar period the dividend on the cumulative preferred share will be 28%.

The owner of a cumulative preferred share receives voting rights for the period during which he does not receive a dividend and loses this right from the moment all accumulated dividends on the specified share are paid in full.

When issuing convertible preferred shares, the possibility and conditions for converting (exchanging) such shares into ordinary shares or other types of preferred shares must be determined. When issuing convertible shares, it is necessary to establish the period, proportionality and exchange rate (Fig. 1).

Fig.1. Scheme for issuing preferred convertible shares

Revocable, or returnable, preferred shares have become widespread. Their essence is that they can be redeemed, unlike ordinary ones, which cannot be redeemed as long as the joint stock company that issued them exists.

A joint stock company can provide revocation or repayment in different ways:

1. Redemption with a premium. The premium acts as a kind of compensation to the investor for losing his source of income. In this case, the repurchase can occur in full at any time after notification of the repurchase or in parts within a specified period. Redemption occurs at a price that is set above the face value, taking into account unpaid dividends.

2. Redemption through redemption or deferred funds. The formation of a redemption fund makes it possible to annually repurchase a certain part of revocable preferred shares through the secondary market and thereby help stabilize the market for one’s shares.

3. Providing guarantees for early redemption at the initiative of the holder through the issuance of so-called retractive preferred shares. Their issuance is resorted to when the issuer does not have absolute guarantees of recall of preferred shares through redemption through redemption. Thus, the block diagram for issuing revocable (returnable) preferred shares can be presented as follows (Fig. 2).

Rice. 2. Scheme for issuing revocable (returnable) preferred shares

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