Types of Shares: The Differences Explained

You might not be aware but there are a number of different types of shares that you can trade. Here’s a breakdown of them.

What are shares?

Before we look at the different types of shares that you can trade, you first need to understand what a share is. When you buy a share you become a part-owner of the company you invested in. Shares are trading on the stock markets and although they are typically considered a high-risk investment, you will likely get greater returns from shares than you would from other products like fixed-interest and cash.

Related articles: How to buy shares in Australia

The different types of shares

There are three mains types of shares issued by Australian companies:

Ordinary shares

The majority of shares you’ll find on the ASX will be ordinary shares. When you buy an ordinary share you’ll be able to vote at general meetings and participate in the distribution of dividends and other assets. Ordinary shares carry no special or preferred rights over other shareholders.

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Preference shares

Preference shares give the holder preferential rights to the shares. Preference shareholders will typically have priority over ordinary shareholders when it comes to dividends and the distribution of the company’s assets on winding up. There are different types of preference shares and they will have different rights and characteristics. Preference shareholders usually have voting rights, however this will depend on the terms of the shares.

Partly-paid shares

Partly-paid shares are also known as contributing shares, and do not require full payment upfront. Often partly-paid shares are used by companies to incentivise investors to participate in the company. At a later day the company mau call for the outstanding issue price, and these terms will be set and agreed upon when the initial shares are purchased. Typically, shareholders of partly-paid shares have the same rights as an ordinary shareholder, but it is proportionate to the amount the shareholder has paid. For example, if you only pay 50% of the issue price for a share, you will only be entitled to 50% of dividends and voting rights.

How to identify the different types of stocks

The easiest way to identify the type of stock is through the ASX code also known as the ticker. A typical ASX code is three letters long. For example, JB Hi-Fi’s ASX code is JBH. If the ASX code is something other than three letters it is not likely to be an ordinary share.

A five letter code generally indicates a preference stock. Three letters for the company code and followed by a two letter prefix starting with a ‘P’. The code for partly-paid stocks is also five letters long. Again, three letters for the company code and a two letter prefix starting with a ‘C’.

How to invest in stocks?

Stocks are traded on an exchange like the ASX. To access the ASX and other exchanges you need to go through a broker or an online share trading platform. If you’re not sure how to open an online share trading account, check out this article.