See details: What are stocks? What are bonds? How are stocks and bonds different? Examples of corporate stocks and bonds.
What are stocks? Stock classification
1. Concept of stocks
The concept of shares is regulated in the Securities Law and the Enterprise Law specifically as follows:
- Clause 2, Article 4 of the Securities Law 2019: Shares are a type of security that confirms the legal rights and interests of the owner to a part of the equity capital of the issuing organization;
- Clause 1 of the 2020 Enterprise Law: A share is a certificate issued by a joint stock company, a book entry or electronic data confirming ownership of one or more shares of that company.
In particular, the Enterprise Law has specific provisions on the contents included in shares, including:
- Business registration number, name, head office address of the company;
- Type, number of shares; par value and total par value of shares stated on the stock certificate;
- Full name, nationality, contact address, legal document number of the individual in case the shareholder is an individual; or name, head office address, business registration number or legal document number of the organization in case the shareholder is an organization;
- Signature of the legal representative of the company;
- Registration number in the company’s shareholder register, date of issue of shares.
Thus, if you own a certain number of shares, it means you own a part of the company’s assets and you are called a shareholder.
Examples of stock investing and how to profit from stocks:
>> In 2021, you buy 1000 shares of fdiinvietnam.com company at 10,000 VND/share. At that time, the value of the assets you own is: 1000 x 10,000 = 10,000,000 VND (Ten million VND);
>> In 2022, because fdiinvietnam.com company is profitable, the value of a share increases to 20,000 VND/share, then the value of your assets: 1000 x 20,000 = 20,000,000 VND (Twenty million VND).
2. Stock classification
Nowadays, people often classify stocks according to the form of ownership, which are:
➨ Common stock (common stock):
Shareholders holding this type of stock will have the rights to manage and control the activities of the issuing company such as voting on issues within the company, participating in board meetings. In fact, most transactions on the stock market are related to this type of stock.
➨ Preferred stock:
Preferred stockholders have some distinct advantages over other common stockholders. According to the Enterprise Law 2020, there are 3 types of preferred stock:
- Dividend preference shares;
- Redeemable preference shares;
- Voting preference shares.
What is a bond? Bond classification
1. Concept of bonds
According to Clause 2, Article 4 of the Securities Law 2019: Bonds are a type of security that confirms the legal rights and interests of the owner to a part of the debt of the issuing organization.
For example:
Company A is in need of purchasing additional equipment for production, so it has issued bonds with the following information: Face value: 100,000,000 VND, interest rate 9%, term 3 years.
Mr. B had idle money and bought bonds of company A.
So:
>> Mr. B has to pay company A 100 million VND/year to buy issued bonds;
>> Company A pays Mr. B interest of 9 million VND/year;
>> After 3 years, company A returned to Mr. B 100 million VND for buying bonds.
2. Bond classification
In reality, bonds currently include the following types:
➨ Government bonds:
A type of bond issued by the Government to increase the financial supply for the Government.
Government bonds can both offset temporary deficits in the state budget and mobilize idle money from the people, agencies and other organizations. This type of bond is also considered the least risky type of security on the market.
➨ Corporate bonds:
Is a type of bond issued by businesses in the form of certificates or book entries.
This is a type of bond that helps businesses raise capital from investors to serve production and business activities. When due, the business is obliged to pay both principal and interest to the bond owner.
➨ Bonds of financial institutions – banks:
Is a type of bond issued by financial institutions – banks for the purpose of mobilizing and increasing operating capital for the organization.
Distinguish and compare stocks and bonds
1. Similarities between stocks and bonds
Basic similarities between stocks and bonds. Specifically:
- Can receive income at a specified level;
- As a capital mobilization and profitable investment tool for investors;
- Can be inherited, sold, mortgaged, transferred and exchanged;
- Act as a basis to prove the rights and legitimate interests of the owner;
- Par value information is printed on the surface of the bond/stock;
- Is a security and is expressed in the form of electronic data/book entries/documents.
2. Differences between stocks and bonds
In fact, stocks and bonds have many differences that can be mentioned, from regulations on the issuing unit, ownership status, owner rights to the benefits they bring to them, ownership period…
Below, fdiinvietnam.com has compiled and analyzed the most basic differences between stocks and bonds, helping you to distinguish them easily and accurately.
➨ 2.1 In essence, the status of the owner
| Share | Bonds |
| The owner of shares is called a shareholder. | Bondholders are called creditors. |
➨ 2.2 About the issuer
| Share | Bonds |
| Joint Stock Company | – Government – Joint Stock Company – Limited Liability Company (1 member and 2 or more members) |
➨ 2.3 About the owner’s rights
| Share | Bonds |
| Because stockholders are company shareholders, they can participate in managing and operating the company and vote on company issues. | Not allowed to participate in company activities. |
Note:
Excludes redeemable preference shareholders and dividend preference shareholders on shares.
➨ 2.4 Benefits that the owner receives
| Share | Bonds |
| – Dividends (profits) are paid and no interest is paid. The more profit a business has, the more dividends shareholders receive and the more valuable the stock is. | – Fixed and periodic income (there are 2 types of interest: periodic interest and non-periodic interest). |
| – The division level is not fixed, depending on the company’s business performance. | – Regardless of the company’s business performance, bonds have only one price and fixed interest rate as at the beginning. |
➨ 2.5 Conversion ability
| Share | Bonds |
| Not convertible into bonds | Convertible into shares |
➨ 2.6 Ownership period
| Share | Bonds |
| No fixed time, depends on shareholders’ decision | Has a certain ownership period and is recorded on the bond |
➨ 2.7 Impacts and consequences on the issuing company
| Share | Bonds |
| – Increase charter capital
– Change the shareholding structure of existing shareholders |
– Increase loan capital, creating debt repayment obligations for businesses
– No change in capital structure of existing members/shareholders |
➨ 2.8 Investor’s responsibility for debts
| Share | Bonds |
| Limited liability for the debts of the enterprise in proportion to the contributed capital | Not responsible for any debts of the business |
➨ 2.9 Risk level for investors
| Share | Bonds |
| – High risk;
– Cannot withdraw capital directly; – In case the company dissolves or goes bankrupt, shareholders will only be paid their capital contribution when the company completes payment of debts and other financial obligations. |
– Low risk;
– Can withdraw capital at any time; – In case the company dissolves or goes bankrupt, it must pay the bond buyers first. |
➨ 2.10 Payment priority
| Share | Bonds |
| In case the company dissolves or goes bankrupt, shareholders will only be paid their capital contribution when the company completes payment of debts and other property obligations. | In case the company dissolves or goes bankrupt, it must pay the bond buyers first. |
3. Should I invest in stocks or bonds?
From the above comparisons and analysis, it can be seen that depending on your risk tolerance, profit goals and payback period requirements, you can make appropriate decisions on investing in bonds and stocks. Specifically:
- If you are someone who likes stability and safety, you should choose bond investment;
- If you want to take risks to achieve higher returns, then stock investment is the right choice.
Some questions about stocks and bonds
1. Which entities are allowed to issue stocks and bonds?
The entities authorized to issue stocks and bonds are not the same, specifically:
- Entities authorized to issue shares: Joint stock companies;
- Entities allowed to issue bonds: Limited liability companies, joint stock companies and the Government.
2. What is the difference between stocks and bonds?
Basically, bonds differ from stocks in the following points: Issuer, nature, ownership status, owner’s authority, owner’s benefits, convertibility, ownership period, impact on the issuing company, investor’s responsibility for debts, level of risk for investors.
See details: Differences between stocks and bonds.
3. What do stocks and bonds have in common?
Basic similarities between stocks and bonds. Specifically:
- Can receive income at a specified level;
- As a capital mobilization and profitable investment tool for investors;
- Can be inherited, sold, mortgaged, transferred and exchanged;
- Act as a basis to prove the rights and legitimate interests of the owner;
- Par value information is printed on the surface of the bond/stock;
- Is a security and is expressed in the form of electronic data/book entries/documents.
4. What are Government Bonds?
Government bonds are bonds issued by the Government to increase the financial supply for the Government.
5. What are corporate bonds?
Corporate bonds are bonds issued by businesses in the form of certificates or book entries. This type of bond helps businesses mobilize loans from investors to serve production and business activities.
6. What is common stock?
Common stock, also known as ordinary stock, is a type of stock that, after ownership, shareholders will have the rights to manage and control the activities of the issuing company, such as voting on issues within the company and participating in board meetings.
7. Should I invest in bonds or stocks?
If you are someone who likes stability and safety, you should choose bond investment. If you want to take risks to achieve higher profits, stock investment is the right choice.
8. Is investing in stocks or bonds riskier?
Investing in stocks has a higher level of risk than investing in bonds, because:
- Cannot withdraw capital directly and depends on the company’s business performance;
- Be responsible for the company’s debts in proportion to the contributed capital;
- In case the company dissolves or goes bankrupt, shareholders will only be paid their capital contribution when the company completes payment of debts and other financial obligations.
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