When it comes to a business entity, the assets of the business come from liabilities or from equity. Equity is the capital of the business. These can be the owner’s equity for sole proprietorship or shares of stock for corporations. For shares of stock, these are investments of investors called shareholders or stockholders. The difference with owner’s equity compared with shares is that with the owner’s equity, there is only one owner in which the owner can withdraw cash from the entity whenever he wishes to in whatever amount. On the other hand, when it comes to shares of stock, it is not the same way. With shares, there are many owners of the company in which these shareholders earn dividends which may come in different forms such as cash dividends, in the form of new shares like share dividends, or in form of tangible property for property dividends.
There are also different kinds of shares. There are preference shares and ordinary shares in which the preference shareholders are the ones who are paid dividends first before the ordinary shareholders are paid. However, preference shareholders are normally nonparticipating which means that they do not get to vote for the officers of the corporation or for the board of directors. On the other hand, there are ordinary shares which can be nonparticipating or participating. For ordinary shareholders, they are paid after the preference shareholders have been paid, but they have an advantage if they hold participating shares because then they are entitled to voting rights and can be elected for positions. There are also redeemable shares that give the company the option to buy back the shares in the future. For these shares, you get a percentage of the company’s earnings in the form of dividends. If the company does not earn, then there is no guaranteed return, but if it does and you hold many shares, then for sure you will get dividends of a huge amount.
