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What is a share and what kinds are there?

Everyone knows that shares represent a proportional part of the capital stock of a limited
company, and that they make holders joint partners of the company, in proportion to the
number of shares held. It is often forgotten, however, that this condition, together with a
series of rights, also entails a series of associated obligations and responsibilities.
Shares can be represented by physical (i.e. paper based) titles or registered in a book entry
system, although the latter is the only way for companies that are quoted on the stock markets.
For listed companies, the ownership of shares takes place through the assignment of registry
references in a depository entity.
Shares can be classified by different criteria. On the basis of the rights that they intrinsically
incorporate a decision of the issuer and aside from the clear right to be able to obtain
the value of their sale and receive information from the company, the most common types
of shares are:

Ordinary shares: these confer economic rights on their owners, enabling them to participate
in the distribution of profits of a company dividends and, if the situation arises, in the
result of the companys winding up. They incorporate political rights of assistance and voting
at Shareholders Meetings, as well as the right of preferential subscription. These are the
most usual type of share in the Spanish stock market.

Privileged shares: these include any economic privilege additional to ordinary shares, generally
a higher dividend through a special participation in profits. These issues are rare in Spains
market and should never be confused with preference shares2.

Non-voting shares: these entail the same rights as ordinary shares, except for voting at
Shareholders Meetings. As a counterparty, the right to a minimum dividend fixed or variable
is conferred, in addition to that distributed for ordinary shares. This minimum guaranteed

Information on this matter is included in the guide, What you need to know on fixed income products

dividend is preferential (it is paid before the ordinary dividend) and is accumulative (if it cannot
be paid this year, it will be paid within the following five years). This type of share is scarce.

Shares that can be redeemed: these are shares that can be redeemed or rescued by the issuing
company at its request, that of shareholders, or both: this distinguishes them from other kinds
of shares, which have an undetermined duration. The conditions for exercising the redemption
are set in the issuance agreements. It can be done by charging to profits, freely available
reserves or by issuing new shares or reducing the capital with the return of contributions.
It should be pointed out that in the event that only the issuer has the right of redemption,
this has to be exercised as of three years from the date of the issue of the shares.

The shares are tradable securities (i.e. they can be transferred). However, as later explained,
the conditions in which the transfer takes place are very different depending on whether they
are listed or unlisted shares.
In addition, in a capital increase there are old and new shares (the new ones come from
the increase), although this distinction disappears over time, as the new shares that initially
have a right to a lower dividend on the basis of the date of disbursement, at the end of the
year, have the same rights.

Listed shares
Companies whose shares are listed on stock markets fulfil a series of requirements that tend
to guarantee their liquidity, although, clearly, there are important differences between the
shares of some companies and those of others. This means that in general the shares can
be sold at any time, that there is an objective valuation (market price) and that the investor
is not obliged to seek a buyer for his shares as the market instantly provides these counter
parties. These are all advantages for the investor, benefits that are not enjoyed by the shares
of unlisted companies.
A company that wants to be listed has to meet a series of requirements. The procedure
varies according to whether the shares are national or foreign ones, traded in the main or
second-tier market, etc. The listing admission in Spanish stock markets generally requires
prior verification by the CNMV of fulfilment of the legal requirements.
In addition, companies must fulfil the admission conditions required by the Stock Market
Regulations, which for the main market are:

A capital equal to or more than 1,202,024.21, excluding the ownership of those shareholders
with packets equal to or more than 25% of the capital stock minimum capital requirement.

There must also be at least 100 shareholders, with individual stakes of less than 25% of the
capital minimum dissemination requirement.

The existence of profits in the last two years or three non-consecutive years in a period of five
years, so that it is possible to distribute a dividend of at least 6% of nominal value after
taxes and with the legal reserve allocated. This requirement can be waived when the company
provides a report from its Board of Directors on the evolution of profits in coming years, as
in the case of new market companies and newly created companies in general.

As well as these minimum requirements, the CNMV tracks the liquidity of listed companies
and promotes the exclusion of those which, for different reasons, do not offer a guarantee
of reasonable liquidity for investors.
Once a companys shares have been admitted for listing, the company is subject to the whole
regime of requirements for admission, trading, permanence and exclusion. It is also subject
to rules that oblige them to communicate significant shareholdings, provide regular public
information, significant events, etc.
Ratings are often found in the reports of analysts and in the media in general, which in
one way or another also classify listed companies. You should be careful with these concepts
as they are still subjective classifications and generally they never establish the limits of what
is considered for each one. We refer to blue chips (those companies with a high market
capitalization and liquidity), as against those popularly known in Spain as chicharros or
speculative stocks (companies in any sector, generally small or medium-sized and with a low
market capitalization, with a high speculative component and thus high risk). And also to
distinctions such as cyclical stocks as against non-cyclical ones (i.e. the generation of profits
is linked to the cyclical nature of the companys activity), or more recently those that divide
companies into growth, value stocks, etc.

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