Equities Ordinary

Equities Ordinary

Equities, the ordinary shares of limited companies. The holders of equities bear the risk; they carry the rewards of good, and the penalties of bad, trade. The equity of a company is the value of the net assets as represented by the ordinary shares. The preference shares are usually entitled to be repaid before the ordinary shares if the company is wound up, but only their nominal price need be repaid. For example, some companies may show freehold properties at original ('historic') cost, which is often much below current market values.

The Stock Exchange price of equities takes into account the dividends paid and expected to be paid and also the possibility that the fixed assets may be considerably undervalued. Since their prices tend to increase as the value of money depreciates, equities are usually a good hedge against inflation.

A recent development has been the non-voting ordinary share, which divorces the control of the company from the risk. Many rights issues, bonus issues and take-over bids have used non-voting shares. This allows the shareholders (if they so desire) to sell their bonus shares without losing any voting rights. Such shares are usually quoted at slightly lower prices than the voting shares. Non-voting shares have been severely criticized on the grounds that it is wrong to require the equity shareholders to index-take risk without having representation as voters. An opposite view is that there is no objection if equity shareholders knowingly entrust the directors and the management with their money, and voluntarily dispense with the control they could exercise through the vote.

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