Equity securities mainly include shares, interim certificates and unit certificates. Debt securities include bills of exchange, bonds and cheques. Other securities include warrants, bills of lading, warehouse receipts and agricultural warehouse receipts. A security represents a claim by its owner against the issuer who issued it. The creditor is the owner of the issued security, and the debtor is whoever issues the security. Every security has prescribed particulars.
It must state the name, that is, whether it’s a share, a bill of exchange, a cheque or a bond. We also state the value of the security, which is printed on the document, and the name of whoever issues the security. Securities are investment instruments.
Shares
Shares are securities whose holder is called a shareholder and is a co-owner of the given joint-stock company. They’re bought at their nominal price if the company is issuing shares for the first time, or at their market price on the stock exchange. When an investor buys them, they put a certain amount of capital into the company, and in return they share in its profit through a regular dividend payment, which varies. Shareholders vote on its amount each year at the general meeting. Shareholders aren’t liable for the company’s obligations.
You can invest in shares on many stock exchanges located all over the world. All you need is an internet connection and an account with a broker or stockbroker. Brokers that let small and medium-sized investors invest in shares from the comfort of their own home are very popular at the moment. Shares are among the most important securities and are the foundation of today’s economy and capitalism.
Unit certificate
A unit certificate is an equity security whose holder has the right to share in the return of the fund that issued the unit certificate, and the right to the corresponding share of the mutual fund’s assets. Holders don’t have the right to get involved in managing or running the fund. Mutual funds sell these certificates to raise money from small depositors, which they then invest on the financial markets.
A mutual fund represents the total assets owned by all the holders of unit certificates. Each holder of a unit certificate is entitled to as much of that money as the number of unit certificates they own.
Interim certificate
If a subscriber hasn’t paid the full issue price of the subscribed share before the company is entered in the Commercial Register (a so-called unpaid share), after this entry the company issues the subscriber an interim certificate replacing all the unpaid shares of one kind that they subscribed to.
Bonds
Other types of debt securities include bonds. A bondholder collects a regular fixed coupon for a predetermined period. The bond’s issuer is the debtor, and the bondholder is the creditor. The issuer issues the bond to raise long-term finance. Once the maturity period ends, investors get back the money they put in, plus interest for the loan they provided.
Bills of exchange
Bills of exchange are debt securities. This means we trade them or transfer them to another owner. The drawer of the bill of exchange commits in writing to pay its holder the stated amount owed. We divide bills of exchange by purpose:
- payment bill of exchange – it’s to be paid when it falls due. Mostly used when purchasing goods or services.
- security bill of exchange – it’s meant to secure the fulfilment of another obligation. Once that happens, the reason to pay the bill ceases to exist. Used to secure loans.
Cheques
Cheques are debt securities. A cheque is a written order that the drawer gives to their bank to pay out funds from their account to the person who presents the cheque or is named on it. The advantage is that cheques can easily be transferred to another person. They’re meant to circulate and represent the holder’s claim against the drawer of the cheque. We divide cheques into two types:
- private cheque – drawn up by natural or legal persons who have an account at the bank. They issue them to their creditors, who can cash the cheque at the bank named on it.
- bank cheque – issued by a bank for another bank, which is obliged to pay out the cheque to the holder in cash or into an account. Both banks have a business arrangement covering this activity.
Warrant
Warrants are securities without interest or attached dividends, whose holder buys or sells a given underlying asset at a predetermined price at a specific point in time or during a specific period.
If you enjoyed our article you can also read about the most favourable loans or about how to manage your money properly and save.