Frequently Asked Questions

What is a stock?

A stock is a security. For the corporation which issues them, a stock is an instrument of the collection of necessary funds (capital), for the purchaser of a stock, a stock is an investment instrument. Unique characteristics of any stock, regardless of the legislation, are that the owner of a stock becomes a (co)owner in the corporation

Which rights do I have as a shareholder?

  • Right to vote at the company's annual meeting
  • dividends in the form of disbursable profit, share to
  • Limited liability in case of the liquidation of the company
  • Proportional share in the company's assets in case of liquidation (after creditors' claims are settled)
  • Preemption right in case of new issuing of the company's shares
  • Limited access to the company's books

What are bonds?

Bonds are written documents which oblige their issuer to pay back the bonds to their owner by dynamics specified in the bonds the funds specified in the said bond.

Who can issue bonds?

Bonds are issued by state (government bodies), i.e. the Ministry of Finance or other government body authorized for such purposes. In addition, bonds can be issued by local government or cities and companies.

Do interest-free bonds exist?

Yes. They are called zero or very low coupon bonds, that is, deep coupon bonds.

What is the difference between bonds and shares?

The world practice on the world's most developed financial markets has blurred the difference between securities and bonds. Nonetheless, the main difference is that the issuer of a stock has no legal obligations to pay back cash or other financial assets to the owner of the said security, or the obligation to trade other financial assets. In other words, the purchaser of a stock shall not expect the issuer to pay back his money as is the case with trading securities. The shareholder has the right on proportional share in the declared dividends or other capital share. The issuer is not legally obliged to perform such a share.

How can I pay back the money invested in a stock?

The quickest way to do so is to sell stocks to a third party. In this way the money is paid back, but you lose the opportunity to benefit from the company's future profits. In case you do not need money immediately, your investment is paid back either through dividends or the rise of stock price on the market.

What is the value of my stock?

In case of sale, a stock's value is not the same as the amount ascribed to it or the amount paid for it. Instead, its value is defined by how much someone is willing to pay for it at the moment of sale. Many people dealing with stocks for the first time feel confused by the fact that they had to pay different amount than the one ascribed to the stock itself. Not infrequently, stocks with a nominal value of 100 kunas can be sold for 30 or 40 kunas, but they can reach the price of 130 kunas or even more. How can it be? A nominal value, i.e. the amount printed is an accounting category. It designated the accounting value of a stock at the moment of issuing. A share of any shareholder is calculated according to a nominal value and the number of votes such a shareholder has. A stock price is not its nominal value bit its market value. A market value is created through the relation between demand and supply on the market, is not determined once and for all, but on the contrary, it is always determined anew. If more individuals show interest for your stock, their market value increases and vice versa; if the interest turns low, their market value stagnates or decreases. Different national and international factors can influence demand and supply, especially current business transactions at the company and the expectations on future transactions.

What types of stocks do exist?

  • common stocks with a voting right
  • preferred stocks usually without a voting right but almost universally offering certain preferences to a shareholder (entitling him to a fixed dividend)

Why does a company issue stocks?

Issuing stocks enables long-term funding. It represents a way of raising capital without taking loans. The company is relieved of any financial burdens as the capital raised need not be paid back, such as is the case with taking loans. In addition, it is not obliged to pay interest rates. If stocks have been placed on a stock exchange and are traded freely therein it is easy to determine the relevant price of new issuing. If the issuer's stock are deemed attractive on the market they can facilitate many business combinations, i.e. business acquisitions or mergers, the development and funding of other projects, the increase in production….

There must be certain risks and disadvantages for the issuer- company?

A risk of unfavorable acceptance of new stocks is always present. There is always a risk that the market will not accept well the issue of stocks. Consequences include not only increased costs of issuing, but also only partially sold issue. The issuer shall feel the pressure of the shareholder's expectation of regular and growing dividends. Once stocks are quoted on a stock market, the issuer is bound to fulfil his obligations of issuing regular reports in accordance with stock market rules. In addition, the issuer shall have to notify a stock market of all relevant business changes which can influence a stock price. In addition, for every enlisted company a real danger exists that a shareholder may accrue too many shares, up to the point when he deems the right moment for the redemption of all shares of a company.

What are my risks as an investor?

Price of certain stocks can fluctuate greatly, as prices are influenced by numerous short-term factors. Indeed, these factors include others than those relating to business success of the issuer himself. In extreme situations, a stock exchange can suspend the placement (trade) of stocks and make it harder for the investor to sell his stock. In addition to the factors mentioned, it is noteworthy to stress at the end that the owners of common stocks shall be last to deliver the remaining assets in case of liquidation (they shall be paid only after the claims of other creditors have been settled).

Index - 08.09.2021.
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