Understanding the Main Types of Shares: ON, PN, and Units for Your Investments

In the capital markets, the universe of stocks and their different formats is essential for those looking to build a diversified portfolio. Stocks represent units of corporate ownership that allow investors to participate in financial results and corporate growth. However, it is not a uniform universe—there are significant variations, each with its own rules, rights, and protection mechanisms. The main types of (ordinary, preferred, and Units) stocks represent distinct strategies within the stock market, requiring investors to have a clear understanding before making decisions. This guide will cover each format, their operational mechanisms, advantages, and risks, providing practical tools to align your choices with your personal investment profile.

The Fundamental Concept: What Are Stocks and Why Do They Matter

Stocks function as certificates of partial ownership in an organization. When you acquire stocks of a particular company, you become a shareholder, owning a fraction of that corporation. Companies issue stocks in the market as a mechanism to raise financial resources, enabling expansion projects, technological research, operational modernization, and other strategic initiatives.

The importance of stocks in the investment context is unquestionable. They represent one of the main instruments through which companies mobilize capital from the market. On the investor side, stocks offer the opportunity for direct participation in corporate profits. When a company prospers, the value of its stocks tends to increase, generating gains for owners. Many corporations also distribute portions of their annual results as dividends to shareholders, constituting an additional source of income.

Share ownership differs substantially from other financial assets in three main dimensions: rights conferred, risk profile, and return forms. While shareholders have voting rights at general meetings and participate in corporate decisions, holders of bonds or debentures lack this deliberative power. In terms of return, stocks are characterized as variable income investments—their gains fluctuate according to market movements, potentially generating significant profits or losses. Fixed income securities, by contrast, offer predetermined returns with considerably lower risk. Regarding dividends, shareholders receive dividends according to the company’s distribution policy, while fixed income investors earn periodic interest pre-agreed. Liquidity also varies: stocks traded on stock exchanges are negotiable depending on supply and demand, whereas some fixed income assets may present difficulties for quick conversion into cash.

Ordinary Stocks: Decision-Making Power and Corporate Influence

(ORDINARY) stocks represent the classic form of equity participation, granting their holder voting rights at the company’s general meetings. They constitute the fundamental representation of the company’s share capital, allowing ordinary shareholders to actively participate in strategic deliberations.

In the Brazilian market, ordinary stocks are identified by adding the letter “3” to the end of the trading code (ticker) on the stock exchange. Petrobras (PETR3) and Vale (VALE3) exemplify this nomenclature.

Rights associated with owning ordinary stocks include: Voting Rights at Shareholders’ Meetings—the main feature, allowing influence over corporate decisions, with voting power proportional to the number of shares owned; Dividend Receipt—participation in profits distributed by the company, like any other stock type; Subscription Rights—preference in acquiring new shares issued, maintaining the proportion of ownership; Bonuses—receiving new shares as additional remuneration, in proportions defined by the company.

Investors choosing ordinary stocks balance specific advantages and disadvantages. Benefits include active participation in corporate decisions (although a considerable volume of shares is needed to exert significant influence) and the potential for appreciation if the company shows robust growth. Limitations include exposure to market fluctuations and volatility, with the possibility of capital losses, as well as variable dividends that depend on organizational performance, unlike fixed income assets that guarantee periodic returns.

Brazilian publicly traded companies that negotiate ordinary stocks include: Itaú Unibanco (ITUB3), the largest private bank in the country; Santander Brasil (SANB3); Bradesco (BBDC3), a nationally relevant financial institution.

Preferred Stocks: Financial Priority Versus Lack of Voting Rights

(PN) preferred stocks operate under a different logic from ordinary stocks. Their holders generally do not have voting rights at corporate assemblies, or exercise them in a restricted manner. The term “preferred” originates precisely from the priority treatment they confer on financial matters.

In the Brazilian exchange, preferred stocks are identified by the code “4” (or occasionally “5”) attached to the trading ticker. Petrobras (PETR4) and Bradesco (BBDC4) exemplify this format.

The distinctive feature of preferred stocks is priority in receiving dividends. In many cases, the corporate bylaws establish minimum or fixed dividend percentages for PN holders, often higher than those offered to ordinary stocks. Banco Santander Brasil exemplifies this: it systematically distributes 10% additional dividends for preferred stocks (SANB4) compared to ordinary (SANB3).

Specific rights associated with preferred stocks include: Financial Priority—guarantee of dividend payments even in scenarios of limited distribution; Preference in Liquidation—priority in capital reimbursement if the company is wound up; Conditional Voting Rights—voting only in specific situations defined in the bylaws; Subscription Rights—participation in new share issues; Bonuses—receiving new shares according to corporate policy.

Advantages of investing in preferred stocks include greater security in dividend flow (through the established priority) and often higher liquidity in the secondary market compared to ordinary stocks. Disadvantages include lack of voting rights (significant only for shareholders with relevant holdings) and loss of corporate decision-making influence.

Examples of companies trading preferred stocks: Gerdau (GGBR4), a regional steelmaker; Vale (VALE5); Klabin (KLBN4), in the paper and pulp sector.

Units: Hybrid Packages Combining Features

Units are deposit certificates that group multiple classes of stocks into a single structure. Typically, a Unit consists of one ordinary share plus a certain number of preferred shares of the same issuing company.

The purchaser of a Unit gains, in a single transaction, simultaneous exposure to both stock formats. This means the investor accumulates voting rights (from the ON) and dividend priority and capital protection (from the PN).

The specific composition of Units varies according to the company’s definition. Santander Brasil (SANB11) structures its Units as a combination of 1 ordinary share plus 4 preferred shares. Klabin (KLBN11) follows a similar pattern: 1 ordinary + 4 preferred. Sanepar (SAPR11) adopts the same proportion.

Benefits of investing in Units instead of separate stocks include: Operational Simplification—diversification through a single transaction, without needing multiple individual operations; Potentially Higher Liquidity—in companies where ordinary stocks have very low trading, Units offer a more viable alternative; Combined Access—simultaneous capture of benefits from both stock formats without separate management.

Disadvantages focus on structural inflexibility—investor cannot choose proportions, accepting the company’s defined composition—and possible conversion costs if later wishing to split the Unit into individual stocks.

Practical Comparison: Guidelines for Selection

Choosing among the three stock formats depends on the individual investor profile, investment horizon, and financial objectives.

Ordinary Stocks are suitable for investors seeking active influence in corporate decisions, willing to accept market volatility, and aiming for long-term appreciation. Particularly appropriate for shareholders with significant holdings.

Preferred Stocks target investors prioritizing regular income, with less interest in voting rights. Especially suited for passive income strategies and more conservative profiles.

Units serve investors seeking a balance between voting power and dividend security, as well as those in companies with low liquidity of ordinary stocks.

In terms of market liquidity, preferred stocks and Units typically trade more actively than ordinary stocks, facilitating entry and exit.

Tag Along: Mechanism of Protection for Minority Shareholders

Regardless of the stock type chosen, understanding the Tag Along right is fundamental for risk mitigation.

Tag Along acts as a protective shield for minority shareholders when there is a sale of control of the company. This right allows minorities to follow the transaction under the same conditions (price and terms identical) negotiated with controlling shareholders.

Practical scenario: suppose you hold a minority stake in a company. A potential buyer offers a specific price to controlling shareholders. The Tag Along right ensures you can, optionally, sell your shares at the same value, avoiding exposure to a new management that may diverge from your investment criteria or the fundamentals that justified your initial entry.

However, Tag Along coverage is not universal. For example, energy transmission company Companhia de Transmissão de Energia Elétrica Paulista (TRPL3) offers 80% Tag Along for ordinary shares but 0% for preferred. Ordinary shareholders would receive only 80% of the purchase price in a control sale, while preferred holders would be completely unprotected.

This highlights the importance of investigating the details of the bylaws before investing, to avoid unfair exposures.

Conclusion: Building a Fundamental Shareholding Strategy

The types of stocks—ordinary, preferred, and Units—are distinct pillars of the Brazilian stock market, each offering specific profiles of rights, risks, and returns. Although all originate from the same issuing company, their operational characteristics differ substantially.

Ordinary stocks provide voting power but expose investors to higher volatility. Preferred stocks guarantee financial priority at the cost of limited participation. Units combine these elements in pre-established proportions, offering operational convenience.

The decision among these formats should deeply consider your investment horizon, risk appetite, return objectives, and critically, understanding statutory protections like Tag Along. Investors who dedicate time to detailed study of stock characteristics, practical examples from each company, and available protection mechanisms are significantly better positioned to build portfolios aligned with personal goals, maximizing sustainable wealth growth potential.