How to Buy Shares in Nigeria

A Brief Introduction to Shares

👉  Shares are fractional ownership units in a firm. While most businesses issue shares, only publicly listed corporations’ shares are exchanged on stock markets.

👉  Shares represent a company’s equity capital, and there are two primary kinds of shares: ordinary shares and preferred shares. Therefore, the terms “shares” and “stock” are often used synonymously.

👉  The two most common types of shares are:

➡️  Common shares provide voting rights and the possibility of capital appreciation and dividends.

➡️  Preferred shares do not appreciate but may be redeemed at a discount and pay regular dividends.

Understanding how shares work

👉  A company’s founders can choose between issuing common and preferred shares to investors when founding the corporation. Investors purchase ownership interests in companies in return for cash that is then used to fund the company’s growth and operation.

👉  While debt capital is legally obligated to be repaid to investors in the form of interest payments or dividends, equity capital does not have this requirement. Every company, from the smallest of partnerships to the world’s largest corporations, issues stock.

👉  Stock in privately held firms or partnerships is often owned by the company’s founders or partners. Shares of enterprises are traded on the stock market as they grow and attract new investors. Among the prominent investors in start-ups can be close friends and family members, in addition to angel and VC investors.

👉  If the company continues to grow, it can seek further equity capital through an Initial Public Offering (IPO). To become publicly traded and listed on a stock market, an initial public offering must be completed. Most companies in Nigeria issue stock that are traded on the Nigerian stock market.

👉  Having a residual claim on the company and its earnings provides shareholders with the opportunity to increase their capital as well as their dividend pay-outs. Additionally, common shares provide voting privileges to their holders, giving them greater control over the business.

👉  Voting rights allow shareholders of record to vote on specific company operations, elect directors, and approve the issuance of additional securities or dividend payments.

👉  If the company ever goes public with fresh shares, stockholders of certain classes of common stock have the option to buy them before everyone else.

👉  Instead of providing considerable market appreciation or voting rights in the corporation, preferred shares typically provide neither. But this kind of stock frequently has defined payment terms and regular dividends, making it less risky than conventional stocks.

👉  Since preferred stock takes precedence over ordinary stock if the corporation declares bankruptcy and is required to repay its creditors, preferred shareholders get paid before regular shareholders but after bondholders. Preferred shareholders are less risky than normal shareholders since they are paid first in the case of bankruptcy.

Why should you buy shares in Nigeria?

➡️  Equity returns have historically outperformed the returns on cash or fixed-income assets like bonds over lengthy periods. Stock prices, on the other hand, fluctuate over time. Overall, this stock market volatility tends to average out, so investors may want to consider a long-term equity portfolio view.

➡️  Taxes and inflation may influence your wealth. The long-term tax advantages of equity investments may help mitigate or even avert the negative consequences of taxes and inflation.

➡️  Others reward shareholders in the form of dividends or other special payments. Because of the favourable tax treatment of equity investments, these payments may offer you monthly investment income and so increase your return on your investment (ROI).