Understand the Differences Between ON, PN, and Units Stocks: Complete Guide for Investors

In the capital markets, the choice between ON and PN shares can make all the difference in your investment returns. Although both represent fractions of the company’s share capital, each has unique characteristics that make them suitable for different investor profiles. Beyond these two classic categories, there are Units – packages that combine advantages of both. This guide demystifies these assets, helping you navigate the stock exchange safely and make decisions aligned with your financial goals.

Why Invest in Shares? The Central Role of Equity Assets

When a company decides to raise funds in the market, it offers ownership fractions to investors through shares. Buying shares means becoming a partner, with rights and responsibilities proportional to your stake.

Shares function as a powerful wealth-generation mechanism. If the company prospers, the value of your securities rises. Additionally, many distribute part of their profits to shareholders in the form of dividends, creating parallel income streams.

The distinction between shares and other investments is fundamental:

Rights: Unlike fixed income securities or debentures, shareholders participate in corporate decisions through voting in general meetings (depending on the type of share).

Profitability: Variable income means uncertain returns, but potentially higher. A fixed-income security offers predictable interest; a share offers chances of exponential growth or significant losses.

Profit distribution: Dividends follow the company’s policy and its asset base; interest payments are fixed contractual payments.

Convertibility: Shares traded on active exchanges have liquidity superior to many long-term investments, allowing quick sale when needed.

Ordinary Shares (ON): Voting Power in the Market

Ordinary Shares give the owner direct influence over the company’s operations through voting rights at general meetings. In Brazil, they are identified by the digit “3” at the end of the trading code (PETR3, VALE3, ITUB3).

Rights and Benefits of ON

Deliberative voting: The larger your holding of ON shares, the greater your influence on corporate decisions – this is what makes them attractive for those seeking active participation.

Profit distribution: Like any shareholder, you receive dividends according to the company’s profit-sharing policy.

Preemptive rights: When new shares are issued, you have priority to buy them, maintaining your proportional ownership.

Bonuses: The company can reward shareholders by issuing new shares instead of cash, automatically increasing your stake.

Real Scenario: When ON Works

ON and PN shares have different dynamics. For those wanting an active voice in strategic decisions – and with sufficient capital for that vote to matter – ON shares are ideal. Examples like Petrobras (PETR3), Vale (VALE3), and Itaú Unibanco (ITUB3) are references for liquidity and growth potential in the Brazilian market.

Pros: Corporate influence, potential appreciation aligned with company performance.

Cons: Intrinsic market volatility, variable dividends, need for significant volume to exert real influence.

Preferred Shares (PN): Focus on Profitability

Preferred Shares prioritize financial return over participation in decisions. Identified by the code “4” or “5” (PETR4, SANB4), they often offer higher or guaranteed dividends.

Structure and Rights of Preferred Shares

Priority in dividends: When the company distributes profits, PN holders are paid first. Some statutes guarantee even higher percentages than those received by ordinary shareholders – for example, Banco Santander Brasil offers an additional 10% to SANB4 holders.

Preference in liquidation: If the company ceases operations, you have priority rights to reimbursement of your capital before ordinary shareholders.

Restricted or null voting rights: Generally, PN do not grant voting rights, or only in specific situations defined in the bylaws.

Subscription and bonuses: Like ON, you participate in new issues and can receive bonus shares.

When to Choose PN: The Path of Predictability

Investors seeking predictable income with lower volatility risk find PN and PN shares a safer alternative. Companies like Bradesco (BBDC4) and Gerdau (GGBR4) offer PN with a consistent distribution history.

Pros: Greater predictability of returns, liquidity often higher than ordinary shares, protection in corporate crisis scenarios.

Cons: Lack of decision-making power, dividends conditioned on company performance (despite priority).

Units: The Fusion of Benefits in a Single Asset

Units function as certificates that group ON and PN shares of the same company into one package. A typical Unit may contain 1 ordinary share + 4 preferred shares, purchased simultaneously as an indivisible block.

Composition and Advantages

By acquiring Units, you get simultaneously:

• Voting rights (via ON component)
• Priority in dividends (via PN component)
• Internal diversification in a single operation

Practical examples in the market: Santander (SANB11) offers 1 ON + 4 PN; Klabin (KLBN11) follows a similar structure; Sanepar (SAPR11) combines 1 ON with 4 PN.

When Units Make Sense

Units are ideal when ON shares have very low liquidity or when you want operational simplicity. Instead of executing two separate purchases, you make a single transaction.

Pros: Automatic diversification, lower operational complexity, potentially higher liquidity than isolated ON.

Cons: Fixed proportion (you don’t choose how much ON vs. PN), possible conversion costs if you want to separate the Unit later.

Comparative Table: ON, PN, and Units Side by Side

Tag Along: The Shield for Minority Shareholders

Regardless of choosing ON or PN shares, understanding the Tag Along mechanism is essential. This right protects minority shareholders when company control changes hands.

What it is: If a new investor acquires the majority of the company, Tag Along ensures you can sell your shares at the same price or conditions negotiated by the controllers. This prevents you from being stuck in a company under new management you don’t trust.

Variable protection: Not all companies offer 100% Tag Along. Companhia Paulista de Transmissão de Energia (TRPL3), for example, provides only 80% for ON and 0% for PN – leaving preferred shareholders completely unprotected in this scenario.

Practical Guide: How to Choose Your Path

Aggressive profile (seeks growth and participation): ON and PN shares are your tools. Focus on ON if you want a voice in decisions; PN if you seek only gains.

Conservative profile (seeks income and security): PN offers greater predictability. Consider Units if ON liquidity is insufficient.

Beginner (without experience): Units reduce complexity of choice. After learning, migrate to more sophisticated strategies with separate ON and PN.

Conclusion: Aligning Shares with Your Financial Project

The stock exchange offers multiple paths through ON and PN shares. Ordinary Shares provide influence; Preferred Shares guarantee profitability; Units combine both to simplify. The key is not which is “better,” but which aligns with your time horizon, risk tolerance, and return objectives.

Studying each modality, understanding its risks and benefits, and monitoring protection mechanisms like Tag Along turn you from a speculator into a conscious investor. The choice between ON, PN, and Units is therefore a strategic decision that deserves careful analysis and alignment with your financial life plan.