An instrument that signifies an ownership position (called shares) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 1000 shares of stock outstanding and a person owns 50 of them, then he/she owns 5% of the company. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions. Only a certain type of company called a corporation has stock; other types of companies such as sole proprietorships and limited partnerships do not issue stocks also called equity or equity securities or corporate stock. Two broad types of shares are ordinary Shares and Preference Shares.
The Nigerian Stock Exchange is majorly an equity stock market. However, preference shares and bond markets are fast developing.
1. Ordinary shares
Ordinary shares also known as Common Shares are securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends, scrip and capital appreciation. In the event of liquidation, ordinary shareholders have rights to a company's assets only after preference shareholders, bondholders and other debt holders have been satisfied.
Typically, common shareholders receive one vote per share to elect the company's board of directors and on other company matters such as stock splits and company objectives (although the number of votes is not always directly proportional to the number of shares owned). Common shareholders sometimes enjoy what are called "preemptive rights"- these allow common shareholders to maintain their proportional ownership in the company in the event that the company issues new shares. This means that common shareholders with preemptive rights have the right but not the obligation to purchase as many new shares of the company as it would take to maintain their proportional ownership in the company.
The Nigerian Stock Exchange has 198 listed equities currently trading on its floors.
2. Preference Shares
These are company stocks with dividends that are paid to shareholders before ordinary shareholders dividends are paid out. In the event of a company bankruptcy, preference shareholders have a right to be paid from the company assets first. Preference shares typically pay a fixed dividend, whereas common shares do not. Unlike common shareholders, preference shareholders usually do not have voting rights.
There are four types of preference shares: Cumulative preferred, for which dividends must be paid including skipped dividends; non-cumulative preferred, for which skipped dividends are not included; participating preferred, which give the holder dividends plus extra earnings based on certain conditions; and convertible, which can be exchanged for a specified number of ordinary shares.
The Nigerian Stock Exchange has one listed Preference share trading on the floor.