The various types of shares

As a rule, shares  A share is a security which gives investors a stake in a company. Companies raise capital by issuing shares. Shareholders have proprietary rights (e.g. entitlement to dividends) and membership rights (e.g. entitlement to take part in the general meeting and the right to vote). whether traded on the stock exchange or not, can be distinguished according to their transferability and the rights associated with their ownership.

Transferability

When looking at the transferability of a share, a distinction is made between:

• Bearer shares
• Registered shares
• Registered shares with restricted transferability

Bearer shares

Previously, the most common type of share was the bearer share, which could quite simply be transferred and, in turn, easily traded – without an entry in the share register. The associated rights (for example, the right to vote at a general meeting) lie with the respective owner, i.e. the shareholder. However, this unregistered type of security is subject to legal guidelines. As a consequence of the Federal Act on Implementing the Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes, the issuance of bearer shares has not been permitted since 1 November 2019. Bearer shares listed on the stock exchange or structured as intermediated securities are an exception. The guidance provides for all other bearer shares to be converted into registered shares.

Registered shares

Registered shares, as the name suggests, are issued to a specific person. They can be transferred to another person by means of an endorsement. This is a written manifestation of intent, which registers the transfer. The new owner can then be entered into the company’s share register and exercise their membership rights (for example, participation in the general meeting).

Registered shares with restricted transferability

Registered shares with restricted transferability are a special case: before they can be transferred to a new holder, the limited company must approve the change. This allows companies to protect themselves from falling into the hands of unknown investors or from selling shares to rivals, for instance. 

Voting rights

Another difference is whether or not voting rights are granted upon acquisition of a share. Here we distinguish between:

• Ordinary shares
• Preference shares
• Participation certificates
  

Ordinary shares

Each ordinary share is associated with one voting right. The owners of ordinary shares have the right to vote at the company’s general meeting and to have a say in the running of the company, as well as the right to receive any dividends. Ordinary shares are the most common type of share in Europe.

Preference shares

In most cases, owners of preference shares receive a slightly higher dividend payout. However in many countries (for example Germany or the US) they do not have any voting rights. In Switzerland, preference shares are quite rare and owners of preference shares are often even at an advantage in terms of voting rights. For example, they have disproportionately greater voting powers than the owners of ordinary shares. The exact rights are set out in the company’s articles of incorporation.

Participation certificates

In Switzerland, there are also participation certificates. They have the same proprietary rights as shares, but participation certificates do not carry voting rights. Holders are however entitled to receive dividends.

Issue time

If a private limited company issues new shares, these are referred to as primary shares. This applies in the event of a capital increase, for example. The shares which existed before the capital increase are referred to as secondary shares. By issuing primary shares there are now more units in total. This reduces (“dilutes”) the proportion of the company held by the owners of secondary shares. As compensation they receive subscription rights for primary shares.

Each individual company determines which type of share it wants to issue − different types are more suitable depending on the purpose for which the share capital is required. It is up to the relevant company to decide whether to treat all shareholders equally or whether to issue different types of securities to different shareholders. It may even issue different types of shares at the same time.