Complete Guide: Stocks versus Shares in Investment

When venturing into the stock market universe, one of the first confusions we face revolves around the securities we can acquire. Shares and participations, although superficially similar, are financial instruments with very different characteristics and scopes. Understanding these differences is essential for making informed investment decisions and avoiding unpleasant surprises.

Deciphering Shares: Nature and Functioning

Shares represent fractions of a company’s share capital. By owning them, we become part owners of the company, even if only partially. This ownership grants substantial rights beyond mere profit expectations.

Shareholders enjoy multiple privileges. Among them are access to dividends when the General Meeting so resolves, the ability to participate and vote in corporate decisions, information about the company’s financial health, and the right of preemptive subscription in capital increases. In case of liquidation, shareholders are entitled to their share of the remaining assets.

A crucial aspect is that shares can only be issued by Corporations (Sociedades Anónimas). Additionally, these can be listed on stock exchanges (such as Wall Street, London, or Madrid) or remain private, depending on the company’s choice.

Understanding Participations: An Alternative with Limitations

Participations are also divisions of the company’s capital but with a more restricted scope. Any type of company can issue them, not just Corporations. This flexibility appears advantageous but is countered by significant limitations.

Holders of participations receive dividends, but lack voting rights in corporate decisions. They cannot exercise preemptive subscription rights nor access privileged information from meetings. Liquidity is practically nonexistent: participations are not traded on regulated markets, but only in private direct transactions between known parties.

The price of participations is not determined by market supply and demand but by internal factors such as the company’s financial statements and income projections.

Participations in Investment Funds: A Different Context

It is important not to confuse corporate participations with those of investment funds. When we acquire an investment fund, what we buy are fund participations, not shares of a specific company.

Funds pool money from multiple investors under professional management, investing in bonds and/or shares according to their strategy. Fund participations represent the proportional share each investor holds in that common asset pool.

Structural Comparison: Shares, Participations, and CFDs

To comprehensively evaluate these investment options, it is also necessary to consider CFDs on shares, financial derivatives that replicate the behavior of shares without conferring actual ownership.

Buying and Selling: The Decisive Process

Acquiring participations requires direct contact with sellers, private negotiation, and prior knowledge of the counterparty. There are no brokers or standardized markets facilitating the transaction.

Shares, on the other hand, when listed on stock exchanges, can be bought or sold with relative ease through financial intermediaries. The process is agile, transparent, and does not require knowing the buyer or seller.

Priority Order: A Critical Factor in Crises

A frequently overlooked element is the priority order in case of corporate insolvency. This order determines who gets paid first in a liquidation:

Secured creditors are paid first. Bondholders follow. Shareholders come last, often being the only ones to lose all their capital.

This is especially important for investors in companies with financial difficulties, where total loss is a possible scenario.

Fundamental Similarities

Despite their differences, shares and participations share three essential characteristics:

• Both represent indivisible fractions of capital
• They are accumulable (multiple units can be owned)
• They must always be assigned to a specific holder

Practical Conclusions for the Investor

The choice between shares and participations depends on the investor’s profile and objectives. Shares offer liquidity, price transparency, and participation rights. Participations provide income but sacrifice flexibility and control.

In modern trading platforms, main access is through shares in CFD format, which balance accessibility, lower cost, and flexible operation. Although CFDs do not confer voting rights over the company, they allow capturing gains from revaluation and dividends, which are the primary goals of most traders.

The key lies in understanding exactly what is being purchased, how it works, and what rights it entails. Only then can truly profitable and conscious investment strategies be built.