Ordinary shares

What it means

Shares that represent the residual ownership of a limited company, entitling holders to vote and to dividends declared out of profits after other claims.

Example

A company issues 100,000 ordinary shares of RM1 each, raising RM100,000 of share capital.

Why it matters

Ordinary shareholders own the company and bear the most risk, so their return rises and falls with profit.

In practice

Ordinary shares appear under equity in the statement of financial position. They are shown at their nominal (par) value as issued share capital, separate from any premium received above that value. Holders are the true owners of the company and rank last for payment. They receive a dividend only after debenture interest and any preference dividends have been met, and their return rises or falls with profits.

If a company issues 100,000 ordinary shares of RM1 each, the issued share capital is RM100,000. In a good year the directors might recommend a dividend of RM0.08 per share, costing RM8,000.

The clearest contrast is with debentures. An ordinary share is part-ownership with votes and a variable dividend that is never assured. A debenture is a loan with no votes but a fixed interest right that must be paid whatever the profit. In a winding-up, ordinary shareholders are repaid only after all creditors and lenders.

If company accounts are new to you, one of our teachers can explain shares and debentures with simple numbers, then build up to exam-style questions. Book a trial class.

Related terms

• Limited company
• Dividend
• Capital
• Share premium

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.3 Limited companies (page 16).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.