Types of securities.

Securities are financial instruments that represent some amount of financial value. They generally take the form of a certificate that grants the holder the rights to participate in the profit distributions of a business.

Security indicates either an ownership position in a corporation (a stock), or a creditor relationship with a corporation or a governmental body (a bond), or rights to ownership, represented by option, subscription right or warrant. Common types of securities are stocks, bonds, and options.

Shares are certificates representing part ownership of the company.

To buy into the company, a shareholder must purchase shares on the stock exchange. Shareholders earn return in two ways: the company makes regular dividend payments, the shareholders may take capital gains (or losses).If the company suffers a loss or goes bankrupt then the shareholders can lose only the value of their stocks.

There are ordinary shares, and preference shares or preferred stock. Holders of preference shares receive a fixed dividend that must be paid before holders of ordinary shares receive a dividend. Holders of preference shares have more chance of getting some of their capital back in the case of bankruptcy.

A bond is a certificate that promises to pay the holder of a bond (investor) a certain amount of money on a certain date. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Another type of securities is option – it’s a contract giving the holder a right to buy a designated security or sell it at a certain period of time at a specified price.

16. Mergers, takeovers & acquisitions

Companies are bought and sold on a daily basis. There are some types of sale agreements:

mergers - two companies come together, blending their assets, staff, facilities and so on to form a new firm.

Takeover – acquisition of controlling interest in firm. So, the purchasing company owns all of the target company’s assets and takeover its management.

The acquisition happens when a company offers to buy all the shares of the company with cash, with stock or a combination of the two. This is called a takeover bid.

If a Board of Directors of target company agrees to a takeover, it becomes a friendly takeover. Takeover which is carried out against wishes of the board is a hostile takeover.

Companies have various ways of defending themselves against a hostile bid. For instance, they can try to find another company that they preferred to be bought by.

Sometimes the companies choose issuing new shares at a big discount, which reduces the holding of the company attempting the takeover, and makes the takeover much more costly.