Overview of an Ordinary Shares Investment Agreement

What is an Ordinary Shares Investment Agreement?

An Ordinary Shares Investment Agreement is a contract for an investor to invest in a company and get ordinary shares in return.

With an Ordinary Shares Investment Agreement, an investor will gain the right to vote in the company’s meeting and also eligible for the dividend generated from the company’s profit.

An Ordinary Shares Investment Agreement is a method to raise funding for a company instead of opting for traditional methods like bank loans.

What are the differences between an Ordinary Share and a Preference Share?

An Ordinary Share gives shareholders the right to vote on important matters such as appointing directors and can participate in internal corporate governance through attending annual meetings and voting. Shareholders can receive dividends if the company has made profits and is also protected against the financial obligations of the company.

A Preference Share doesn’t give voting rights to its shareholders but they will be given preferred treatment over the ordinary shareholders and a fixed amount of dividend payment is paid to its shareholders. They also enjoy a priority right to be repaid if the company becomes insolvent or entering liquidation in the future.

What are the advantages of the Ordinary Shares Investment Agreement?

Voting Rights: Common shareholders can participate in internal corporate governance through voting. Ordinary shares provide a small degree of ownership in the issuing company. Stockholders have a certain amount of say in how the company is run and are allowed to vote on important decisions, such as the appointment of a board of directors. For each share of common stock owned, the stockholder gets one vote, so the stockholder’s opinion becomes weightier when they own more shares.

Capital Gains and Dividends: An investment in ordinary shares has the potential for unlimited gains, while the potential loss is limited to the original amount invested. Selling shares at a higher price than the original purchase price results in the investor realizing a capital gain.

Limited Liability: Common shareholders are protected against the financial obligations of the corporation and are only liable for the value of their shares. They also gain preemptive rights. Shareholders with preemptive rights gain access to new share issues before the rest of the investing public, often at a discount.

Benefits for Issuing Companies: Issuing common shares is an important way to raise capital to fund expansion without incurring too much debt. While this dilutes the ownership of the company, unlike debt funding, shareholder investment need not be repaid at a later date.

Conclusion

All kinds of businesses require some amount of funds for their growth and expansion. Although there are different methods to raise the funding, an Ordinary Shares Investment Agreement provides an investor the benefits of voting rights and limited liability.

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