Stocks in the Joint-Stock Companies

The capital of a joint stock company is divided into shares of equal value and the company determines the nominal value of the stock to shareholders that the company expects they purchase its shares and generally the lower nominal value to a share attracts a larger number of small investors, in the ordinary cases, the joint stock companies issue the stock certificates per shareholder to indicate the number and value of shares owned by each shareholder and ownership of these shares is proven by doing a journal entry in the company's books and transfer of these shares in writing in the books mentioned where the signature can be placed from the assignee and the assignor, or signing both their agents, and the director of the joint-stock company shall state that in the margin or on the back of the share if it does not give another new share and it is also possible to issue the bearer shares, in this case, the ownership of these shares transfers hand to hand without having to do a journal entry in the company's books, this makes it easy to trade and therefore stocks in the joint-stock companies may be either nominal shares or bearer shares & cash shares or non-cash capital stocks.

Types of Stocks

First, Common Shares

These are ordinary shares in the sense that they do not get a share in annual dividend only after the company has determined that it will pay dividends and also after pay dividends to the preferred shareholders as their owners do not receive return on a fixed-rate but at different rates, in different amounts, called coupon, this is based on the adequate  annual dividend, the board policies and the general meeting decisions in the dividends or not or investing them in the company expansions also the common shareholders do not get their shares value when the liquidation only after pay dividends to the preferred shareholders when the liquidation, that means they may not be able to redemption their shares value in full if no amounts remain after the company is liquidated and pay all its liabilities and the company may

The joint-stock companies usually issue common shares stock certificates issued to each shareholder, where the certificate includes the following data:

1- Company name, company registration number, corporate headquarters address, shareholder name, nominal value of shares, and other data

If the company does not issue stock certificates, it issues one instrument the total outstanding shares, which indicates:

- Number of shares, their types, their value, the amount paid, the serial numbers of shares, and a shareholders list is attached to this instrument and the percentage of what they paid

The capital surplus is when the company issues shares higher than the nominal share value that has previously issued and they are not subject to income tax, whether it is allotted in a special reserve, or that reserve was used to increase capital because the capital surplus is only part of the capital and the tax is imposed on net profit and not on capital

Rights and Privileges of Common Stockholders: 

1- Voting Right

Each common stockholder has the right to cast vote at the annual general meeting and the owner of each share can cast vote attend at the general meeting or use a proxy of not members of the board of directors.

2- Contesting the corporation’s decisions

Shareholders with at least 5% of the shares of the company can request the Capital Market Authority to issue a decision to suspend resolutions that favor certain shareholders, inflict damage on these shareholders, or bring particular benefit to the board members or others.

3- Control of the Firm

Common stockholders control the firm through their right to elect the company's board of directors and common stockholders are the true owners of the firm, therefore, have the inherent right to control on the assumption that the company is run for shareholders.

4- Preemptive Right

The existing shareholders have the right to purchase a specified number of shares of the company's stocks before the stocks are offered to outsiders for sale, the number of new shares are determined the old shareholder is entitled to purchase on the basis of the number of old stock compared to the number of new stock to be issued for sale, if we hypotheses the capital of a joint stock company is LE10 million divided into million shares the company is increasing share capital by issuing new shares of LE5 million, in this case, the existing shareholders right to purchase new shares, and giving this right to the old shareholders is due to the desire of the founders to protect their favors from two perspectives:

The first is to protect old shareholders from the department's trying to eliminate their control by issuing new shares to new investors to own a majority of votes ensures the continuation of the existing members.

The second is to protect old shareholders from manipulation of market value of stock, for the favor certain shareholders with a more targeted approach to allow for their entry into company.

5- An Entitlement to Dividends

Arguably, this the greatest right for common shareholders from a majority shareholder’s perspective, and the cash flow to stockholders is called dividends, and if the cash dividends are the most common, there are non- cash dividends, most notably the bonus shares, and dividends are divided into cash dividends or stock dividends.

6- Stock Split

A stock split is a corporate action in which a company divides its existing shares into multiple shares to increase the number of shares and their nominal value is reduced and thus an incentive to purchase these shares in the stock exchange, if the nominal share value 20 EGP, the company can split the stock 5-for-4.

Basic Concepts of Stocks

The nominal value of a share: the value set forth in the company's contract and written on the front or face of a stock and is used as the basis for dividends to shareholders.

Market value: is the value in which the stock is sold in the market.

Book Value per Common Share = Shareholders' Equity / Number of Outstanding Common Shares

Preferred Stock:

Preferred stock is a share in the company ownership gives its holder the right of enjoying additional benefits from the rights of common shareholders such as preferred shareholder enjoys priority first in the dividends or the liquidation of the company before common shareholders, and the advantages of preferred stock is the fixed income that is the percentage of preferred stock dividends is fixed of nominal value of the share, the preferred shareholders are often not given voting rights in the company unless the company’s contract stipulates otherwise and the preferred stock although has no fixed maturity date, however, there can be callable preferred stock, the callable preferred stock is the stock where the issuer of such stock enjoys the right to repurchase and there are also some preferred shares that include an option for the holder to convert the shares into a fixed number of common shares and give shareholders priority to redemption nominal value of the share in case of company bankruptcy and liquidation

Most preferred stock is cumulative preferred stock means that if the company suspends dividend payments, the unpaid dividends (known as dividends in arrears) owed continue to accrue, i.e. if a joint-stock company suspended dividends to cumulative preferred shareholders within two years and it decided to pay a dividend in the next year, the company must first to pay a dividend to preferred shareholders in the two-year period before pay a dividend to common shareholders

Preferred stock combines the characteristics of common stocks and bonds as it is similar to common shares that it has no fixed maturity date (common shares), on the other hand, it is similar to bonds that ensuring the fixed income like bonds, therefore it is considered hybrid securities because they combine two characteristics of sources of funding, there is disagreement in their consideration as equity instruments and some consider it as debt instruments

Preferred stock has a specific nominal value, book value, and market value

Nominal value is the value written on front of stock and uses that value in getting dividend where the preferred shareholder gets a fixed percentage of dividend and also when the company is liquidated.

Book Value per Preferred Share = Preferred Stock / Number of Outstanding Preferred Shares

Market value: is the value of the sell stock price or the value of the stock in the stock exchange for the last traded price if the company its shares are on the stock exchange.

Types of Preferred Stock

1- Cumulative Preferred Stock: 

They are shares whose owners have the right to obtain the annual fixed dividend rate, whether annual dividend is sufficient or not, if dividend is insufficient in a year and not pay any dividends and the dividend was sufficient in the following year, the owners of these shares receive a double share of the dividend that is, the previous year and the current year, and so on, the cumulative preferred stock is a feature of its owners, which is to ensure a fixed rate of return on their shares for each fiscal year even if dividend in some years was inadequate.

2- Non-Cumulative Preferred Stock:

These are shares that gain the advantage of getting the fixed rate as a return on their shares provided that the annual dividend achieved is sufficient to pay dividends, if the dividend achieved in a year are not sufficient, they are not right to claim for lost dividends in this year even if the dividend in the following years is sufficient.

3- Participating Preferred Stock:

These stocks offer that their owners receive a fixed-rate dividend, in addition to participating in receive an additional dividend if dividend is achieved and the company pays an additional dividend to common stockholders.

4- Preferred Stock upon Liquidation: 

These are shares that do not have the advantage of earning an annual fixed dividend rate earned but earning them the advantage of getting their rights first and before other shareholders when liquidating the company, i.e. it guarantees investors redeeming their shares value in the case of liquidation before other shareholders of preferred shareholders for both dividends and common shares.

5- Redeemable Preferred Stock:

These are preferred stock and may be cumulative dividends or non-cumulative dividends but redeeming value to owners after a limited number of years are four years and thus are achieved for their owners guaranteed return over a limited number of years at the end of them its full value redeemed.

6- Convertible Preferred Stock:

This type of preferred stock that gives holders the option to convert their preferred shares into a fixed number of common shares, which is achieving the company has a remove of burden of paying dividends feature to preferred shareholders, and preferred shareholders also have the advantage of staying in the company when the firm’s economic and financial conditions are growing