Shareholders of non-tradable shares

Introduction

Non-circulating shareholders are those shareholders who are not permitted to trade their own shares in a publicly listed company. When these shareholders enter the stock market they are not allowed to sell their shares to the public. This type of shareholder usually has the right to vote in company decisions, but the shares are not sold or traded. This type of shareholder is often referred to as a “cornerstone investor”.

Benefits

For such shareholders, the primary benefit of being a non-circulating shareholder is that they are able to protect a long-term asset at a much lower rate of return than other investors. This makes these types of investors an attractive option for companies looking for investors who are less likely to exit their investments quickly. This can help a company to protect its stock price and reduce volatility.

In addition to protecting the company’s stock value, non-circulating shareholders benefit from receiving a steady dividend payment. This allows these investors to enjoy the benefits of dividend income without the pressures of the market. Furthermore, these shareholders can also receive capital gains, which are not subject to the same risks associated with fluctuating stock prices.

Risks

Although non-circulating shareholders reap some benefits from their investments, they also face some inherent risks. For example, since these shares cannot be easily sold or traded, the overall value of the stock can become significantly more volatile. This could lead to sudden and significant losses if the stock value drops significantly.

In addition to this, non-circulating shareholders’ investments are also subject to dilution. This occurs when the company issues more shares and the share of the non-circulating shareholders’ investment shrinks, reducing their overall stake. This could be detrimental for these investors if the company does not use the new shares to finance projects or increase the company’s value.

Conclusion

Non-circulating shareholders are investors who are not able to sell or trade their shares in a publicly listed company. These shareholders benefit from protecting their long-term asset at a lower rate of return, as well as receiving dividend payments and potentially capital gains. However, these shareholders also face the risks of significant losses if the stock value drops and dilution if the company issues new shares.

Non-circulating shares refer to certain types of equity that are not publicly traded and do not change hands between buyers and sellers. These types of shares, also known as restricted, privately held, or unlisted shares, enable the managerial team to maintain majority control of the company without having to issue more common types of equity.

This type of capital structure enables small businesses to keep financial power within the hands of a few key shareholders. While these shares provide value to the shareholders, access to capital is typically much more difficult to obtain if the company does not have sufficient value to attract venture capitalists or private equity buyers. Further, these shares may not pay dividends, which can be an issue for companies seeking quick capital.

Non-circulating shares may also take the form of preferred or other types of equity. Preferred shareholders often receive certain types of privileges that common shareholders do not. For example, they may receive a preferential voting right, or a right to retain voting control of the company even as the number of common shares increase. Similarly, additional privileges may exist in the form of dividend payments, liquidation rights and other benefits.

Despite potential benefits, non-circulating shares may also present some potential risks. Businesses may be unable to access capital when needed or rely on it only when a liquidity event occurs. Furthermore, these shares may increase the complexity of the corporate structure, as there would be multiple levels of shareholders, each with their own rights and obligations.

Overall, non-circulating shares represent an effective way for startup and small businesses to retain control of their company without having to issue common shares. While there are potential benefits, shareholders should carefully consider the risks associated with this type of equity structure before committing any funds.