Business Life Insurance 12 - Advantages and Disadvantages of Common and Preferred Share Holders

As we mentioned in the previous article, we know that corporations generally are started by it’s original shareholders who provide the start-up cash or assets in exchange for their shares. The corporation may eventually be owned by a large number of shareholders. In this article, we will discuss the structures of corporation shares and types of shares that corporation can issue. There are 2 types of corporation shares: common shares and preferred shares. These shareholders have certain rights:

1. Common share holders

a) Advantage

* right to share in growth of earnings and assets.

*right to sell shares.

* right to vote on Board of Directors and certain issues.

* right to attend company meetings and examine the books.

* right to annual report.

* receive a tax credit on Canadian corporate share dividends.

b) Disadvantage

* last to receive a portion of assets on wind-up of a company.

*dividends are only paid when declared and are related to amount of net earnings.

*dividends are paid after bond interest and preferred share dividends.

2. Prefer share holders

a) Advantage

* dividends are paid before common shareholders but after bond interest

* bonds holders come before preferred shares at the wind-up of the company.

b) Disadvantage

* Less indication of company ownership

* Corporation dividends are usually fixed by the share certificate and affected by the profitability of the company and the intent of the Board of Directors.

I hope this information will help you understand more of the right of corporation shareholders. If you need more information, please visit my home page at:

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