Introduction
For all the stock exchange investors mentioning the American international group, Inc is a dream company investment and one that is spoken of in the same hush-hush terms that a violinist talks and dotes on the Stradivarius. With the choice of more than 70 percent of the investors and the government treasury, the American international group Inc insurance company has totally dominated the stock exchange industry, raking in the top five well doing companies for the pas years. Critically acclaimed as an international company that has carved investors into a big-time businessman with rich and wealthy people since the early 1990s, the company has continuously impressed its adoring participants the American international group Inc has earned a great reputation for producing reasonable profit and revenue, However, this has had to be a compared by a couple of things with years of intense marketing and dedicated management protocols, in order to ensure that the market dominance and reputation are maintained, greatly increasing their reach over the international frontiers. All this different, yet great strategy in approaching business and its competitor has hard American international group Inc as the most celebrated company in the industry of insurance.
American international group Inc has also over the years engaged in a fully committed workforce and reaped the benefits. Many of the firms with comprehensive approaches in the monument sector enjoy greater profits from the partners in the business all the down to the benefits that the employees get. Like any other successful business the American international group Inc loom approach to management has been one that is very unique in the market. The fact that this company has been opened to the public has given the company a chance to earn more money for business, thus giving the company a chance to pull up funds to the capital and boosting up their working capital. The news got the city of the A.I.G. Company’s intentions of issuing common shares to the preferred shares so that they can be in apposition to substantially increase the tangible common equity of the company and on the other hand decrease any more government investment in the company. This particular move was intended to builds the companies to a level of profit making equity and at the same time eliminate uncertainty and re-establish the confidence of the investors.
Common shares
In the corporate company the ownership in relation to the amount and type will all differ. Common stock is a structure of corporate equity possession a kind of security in the function of the company. It is referred to as the ‘common share’ so as to differentiate it from the ‘preferred shares’. The holders of these common shares are more influential in the matters relating to the objective and policy (Wells 204). Their say is dominant when it also comes to stock split and the process of the board of directors in the company. These share holders come in hand to share in the losses but thus making their count in receiving their fund in case of dissolution after the preferred share holder, bond holders and the creditors. On this occasion of liquidation, common shareholders exercise their rights to a company’s assets only after the bond holders but on average remittance and gain in the company do way better than the preferred share holders. When it comes to the common share holders they have no fixed dividend paid to them every month rather their income is uncertain and fluctuates from month to month which is contingent on the company’s revenue over the efficiency of their own marketing strategies. These common shareholders are also commonly known as the ordinary shareholders and they have other additional reimbursement including dividends and interest on the capital appreciation. In the cases that business does not go well and they are declared bankrupt, meaning the business is to be dissolved the ordinary share holder’s payment will be put on hold until the creditors and the proffered shareholders have had their particular split of the snippets assents of the company. This is one of the reasons that make common stocks a little more risky in investment than in preferred shares. However, they still have their upside in the usual outperformance in the bonds more than the other kind of share holders.
Preferred Shares
Preferred stock is an exceptional class of shares that has a combination of different features that are not possessed by common stock. Preferred shares on the other hand are extraordinary equity security in the company. It is a rank of corporate ownership that has a superior claim on all the assets and the income of the company compared to common shareholders. Though the specific details in regards to the structure of the preferred stock collection in each corporation but the best way of considering these shares is a financial instrument that exemplifies fixed dividends and equity (Wells 214).
The owners are referred to as the preferred shareholders or preference shareholders. They have properties both in the areas of equity and debt instrument and most of the time is declared as the hybrid instrument from the company. These are measured as the privileged ranking shareholders and they are more superior to the common stock but yet again they lie as the subordinate to bond. These preferred shareholders do not have the voting powers but instead they sit back and will still carry dividends. In the case of liquidation, they will definitely come on top of the list for settlement before the ordinary shareholders. There are precise terms that are attached to preferred stocks that will be stated in a “Certificate of Designation”(Wells 218).
Characteristics of common share versus preferred shares
American international group Inc wanting to raise more capital to support the business plans of expansions and saving the company from closure after being hit drastically by inflation opted to sell shares. This main quality of investing in this kind of shares in one’s business is the part that one raises capital without raising the number of voting shares in the company who are the (common shares holder). The major attraction that comes with the package of the preferred stock is when the investors are only interested in making money and have nothing to do with the running of the company. Unlike in the preferred shares when deciding to be a holder of the common share much knowledge is more required in understanding the running of the particular company. In this case on should learn the features of American international group Inc bat company the financial position through their income statement (Wells 221). By doing this reduced the high risks that are involved when it comes to committing as a common partner. In doing all this it gives one a basis of judgment in wanting to buy the common stock of this bat company.
When it comes to making decision on either joining the American international group’s Inc company or as any the kind of holders the major observation will be the performance of the company. This directly affects them since the financial performance will directly trigger their income in form of dividends and bonds. Having done good research and knowing that American international group Inc insurance Company is a worthwhile company to invest in, its revenue it’s on top of the list in best selling companies, the only other decision is to look into the benefits that each type of share holder has. In the case of investment for an income the preferred shares are the most suited, since they have a guarantee for dividend payment as long as the organization is able to do so. Due to this character they are the most preferred because they are considered to be a hybrid compared to the common stock(Warren 48)… The preferred shares are commonly known as income producing securities. On the other hand ordinary shareholder will have the right to collect dividends but only when they are sanctioned by the corporation board of directors. This puts the holder in a tricky position since the dividends are not guaranteed and most of the corporations will not offer them even under request. The common shareholders have their bonus payable periodically which can be decreased, increased or even discontinued depending on the financial performance of the company.
One other major chief reason of people go for the preferred shares is the fact that it does carry less risk compared to ordinary shares. In the case that a company is to be dissolved, or liquidated the preferred shareholders are given the priority in settling their earnings. They are fully compensated before any other settlements are made including the creditors of the corporation (Warren 58). All that is owed to them is first settled by the company, thus making their stock less volatile. Unlike the preferred shares the common shares will be the ones to take the risk and will have the final claim on the remaining assets and also important to note that their claim will be secondary after the creditors and bondholders of the company have been completely compensated.
Outstanding Shares
In the American international group Inc insurance company there is a number of shares left out to the public to purchase so as they can increase the amount of working capital for expansion. A.I.G which is also known as the American international group Inc is America’s most insurance company of all times? The company has had to agree with the United States regulators on the selling of the government holding into the public. The company has sold its shares into the stock market for common shares (Wells 278). This was led to this drastic decision in an attempt to save the company that had been threatened by global inflation for about two years. Outstanding shares are those shares in the corporation from the common share part that have been endorsed, issued and already purchased by the willing investors. They are presented with ownership of the corporation by the privileges that the shares have(Wells 278). The institutions lending the shares are now no longer in control of the stock shares, in terms of ownership but are in the hands of the public. They have the computation of dividends and the open market capitalization of the public trade, and this ownership privilege gives them voting power.
Methods of Voting
Shareholders who have voting rights or privileges will be ordinary shareholders. This will not only affect the American international group insurance company but it is a rule that governs the ownership of any company with private sales of shares to the public. Though the ordinary or preferred shareholders are not directly active and their contribution to the company is limited, the common shareholders will be called upon t vote in the cases of major changes are to be effected(Warren 53). A good example when the shareholders can be called in to vote is when they want to change a director (Hill 227). They have the right to change him/her without any solid reason, in the case if they have a rough idea that he is mismanaging the company or negligence, and they feel that he is putting their investment at risk. In this Bat Corporation they shall be needed to vote at one point. There are set rules regarding the voting process. Since shares and stocks keep changing hands especially in large operation organizations, there is a set date by which every transferred shared is to be owned right before the shareholder’s meeting so that they can be eligible to vote.
The voting date is set and the shareholders are informed by mail of the date venue and time of the meeting. This letter will also include financial report of the performance of the business and agendas of other matters to be discussed(Warren 63). Mainly the voting process is normally democratic meaning one man one vote. In this precise organization American international group insurance company they have allowed the member if they are not in a position to be in the meeting they can vote by mail. Since all the agendas are well described in the mailed letter the purpose of voting is also indicated, thus they are given an opportunity to reply to the letter with their voting choice. In case there was no time to reply to the letter they are allowed to vote by proxy, since there is a written sanction of one person voting on behalf of the other. Overall each share is entitled to one share of the vote.
Common stock versus Preferred stock ratio
The shares outstanding can be calculated either as basic or fully diluted to the total capital. All the diluted shares will count inclusive of securities as warrants or convertible. A common shareholders stock ratio will be considered as the total shares owned divided by its total capitalization then expressed as a percentage. While the calculation of the preferred share will be a little different as their calculation will be the stock par value of the stock divided by the long term capital invested (Warren 73). This then the capitalized bond and the net worth represented are articulated as a percentage. The United States treasury had to agree with the decisions made in regards to saving of the company and also in maintaining the proceeds of the company in order to keep its employees on the payroll (Hill 254). The company has had preferred stock worth about 49.1 billion dollars and another out common shares of about 1.67 billion dollars. This is the equivalent of the common shares who held abou20% of the company giving is up to about 8% of the companies worth, and they also receive a 75 million warrant issued striking a price of$45 each (Hill 254).
The rights of a common share holder and a preferred shareholder
The common shareholders have the privilege of voting in the decision makings of the company but the preferred shareholders cannot vote and neither can they make any decisions. When it comes to liquidation or dissolution the preferred shareholders have the right to benefit from the company’s assets before the ordinary shareholder and even the creditors. As the returns of the ordinary will be determined when they get the dividends either quarterly or even annually the preferred shareholders are entitled to monthly dividends no matter how much revenue the company is making (Warren 79). This gives the investor an option to lock divided income and potentially make a profit from the raise in common shares. Unlike the common shares they cannot enjoy the privilege to change their kind of shares to the ordinary like the preferred stock holders.
References
Hill, Bob. Update: A.I.G,Treasury Prepare For Life After Bailout. Oxford University Press US, 2006. pp. 2-56.
Warren, Bruce. The Role of Debt and Preferred Stock as a Solution to Adverse Investment Incentives. London, UK: Rutledge, 2002.
Wells, Liz. Incorporated Marginal and Effective Tax Rates. London, UK: Rutledge, 2004.