Stocks vs. Participation Rights: Two Concepts that New Investors Find Most Confusing

Once you enter the world of investing, you’ll find yourself bombarded with a bunch of terminology. Among the easiest to fall into traps are the concepts of stocks and participation rights. They seem very similar on the surface, but in reality, the differences are huge. If you don’t clarify these, you might buy the wrong products, and your returns could be significantly affected.

Why do investors often confuse stocks and participation rights?

Honestly, they look quite similar—both are proof of your ownership in a company and can help you make money. But this is only superficial; the underlying logic is completely different.

The most direct reason is: While both stocks and participation rights represent a part of a company’s ownership, stocks have a clearer definition, and participation rights are more flexible in form. Many investors simply don’t know exactly what they are buying.

Understanding Stocks (Acción): You are the true owner of the company

Let’s start with stocks. Stocks divide a company’s ownership into several equal parts, each called a share. When you buy stocks, you legally become a partial owner of the company.

Based on the number of shares you hold, you are classified into two roles:

Shareholder: Holding enough shares to have a substantial influence on company decisions.

Minority shareholder: Holding a smaller proportion, making it difficult to influence the company’s direction alone, but collectively, minority shareholders can still wield significant power.

Four major rights granted by stocks

When you purchase stocks, you gain:

1. Dividend rights — You receive a share of the company’s profits when dividends are paid
2. Information access rights — You can review the company’s financial and operational data
3. Voting rights at shareholder meetings — You can speak and vote at shareholder meetings
4. Preemptive rights — When the company issues new shares or convertible bonds, you have the priority to buy them
5. Liquidation rights — In case of bankruptcy, as an owner, you have the right to participate in asset distribution

These rights are important because you are the actual owner of the enterprise, not just a creditor.

How convenient is stock trading?

Stocks can be traded on formal markets like the New York Stock Exchange, London Stock Exchange, Madrid Stock Exchange, etc. As long as a company chooses to go public, its stocks enter the open market, and you can buy and sell easily.

But there’s a detail often overlooked: Not all companies go public. In fact, the number of private companies far exceeds that of listed ones. Even among listed companies, not all shares are made available for trading; some are kept as treasury shares.

How do companies get stocks into the market?

Companies can do this in three ways:

Initial Public Offering (IPO): The company does not issue new shares but offers existing shares (all or part) to the market for sale.

Follow-on Offering (FPO): The company issues new shares to raise capital.

Direct Listing: The company lists on the exchange without issuing new shares or selling existing ones, directly trading on the market.

How many types of stocks are there?

Not all stocks are the same. Based on rights, they can be divided into:

Common Stock: The most basic form, with all standard rights (dividends, voting, etc.).

Preferred Stock: Has priority in dividends and liquidation but no voting rights; returns depend on company performance.

Non-voting Stock: Identical to common stock except lacking voting rights.

Repurchase Shares: The company and holder agree in advance on repurchase conditions; these stocks have a limited holding period and are not perpetual.

Understanding Participation Rights (Participación): A different proof of ownership

Now, let’s turn to participation rights. At first glance, they are similar to stocks—they are also a part of the company’s ownership divided after segmentation. But only joint-stock companies can issue stocks, whereas any type of enterprise can issue participation rights.

Core features of participation rights

Participation rights have three obvious characteristics:

1. Dividend rights only, no voting rights — You can share in profits but have no say in decision-making
2. Not traded on the market — Participation rights can only be traded privately, with no public market
3. Price determined by the company’s fundamentals — Unlike stocks, which are driven by supply and demand, participation rights’ prices depend entirely on the company’s current financial health and future income expectations

How difficult is it to buy and sell participation rights?

This is the biggest disadvantage of participation rights. Stocks can be easily bought and sold through stock exchanges, but participation rights cannot.

You must directly find a seller or buyer, and need to understand your trading counterpart. This process is time-consuming and inefficient. Without intermediaries to facilitate trades or a standardized price, liquidity is extremely low—you might want to sell but can’t find a buyer.

Shareholder vs Participant: The essential difference in identity

Although both hold a part of the enterprise, their roles are fundamentally different.

Shareholder (Accionista): You are not only an owner but also a decision-maker. You own the company and can participate in governance. If the company succeeds, you benefit; if it fails, you bear the risks. You are a stakeholder.

Participant (Partícipe): Essentially, you are more like a creditor than an owner. You have the right to receive returns at a predetermined time. After maturity, you recover your investment, and the relationship ends. Your connection with the company is temporary and time-limited.

Application of participation rights in fund investments

If you’ve invested in fund products, you’ll notice an interesting phenomenon: When you buy a fund, you’re actually purchasing participation rights in the fund, not stocks of the fund itself.

The logic is as follows:

A fund is an asset pool jointly contributed to by many investors. According to Spanish law, a fund must have at least 100 participants, with a minimum capital of 3 million euros. The fund is managed by a management company responsible for investment decisions, and a custodian bank executes transactions and safekeeping.

Your participation rights represent your share of the total fund assets. The fund pools all investment targets (like stocks, bonds) into a single entity, then divides it into multiple participation rights allocated to investors. The benefit is that each investor can hold a diversified portfolio with a relatively small investment.

Debt repayment order: a key factor in investment risk

This is a knowledge point that novice investors often overlook but can directly impact your hard-earned money. We are talking about the order of debt repayment, i.e., who gets compensated first in the event of bankruptcy.

In the company’s liquidation queue, the order is roughly:

First: Secured senior creditors (e.g., mortgage holders) … (other creditors in between) Last: Shareholders

What does this mean? Shareholders are always the last to get paid. If the company goes bankrupt, assets are used primarily to pay debts first, and only the remaining are distributed to shareholders. Often, there are no residual assets left.

This is especially important for investors in “penny stocks” or stocks of struggling companies. If the company faces a crisis, your investment could be wiped out entirely.

The core similarities between stocks and participation rights

Despite their obvious differences, they also share some common points:

Both are segmented ownership — whether stocks or participation rights, they divide the company’s capital into multiple parts, each representing an equal stake. There may be special privileges in some cases, but fundamentally, they are similar.

Can be held cumulatively — you can buy multiple shares or participation rights of the same company, or different companies.

Indivisible units — the minimum trading unit is one share or one participation right; they cannot be subdivided further. Each must be owned by an individual or legal entity.

Complete comparison table of stocks and participation rights

Why do trading platforms mainly offer stocks rather than participation rights?

If you trade on investment platforms, you’ll mostly encounter stocks or stock CFDs, and rarely participation rights. This is not accidental.

Stocks have high liquidity, anyone can buy or sell at any time. Participation rights are hard to trade, requiring private negotiations, unsuitable for platform operation. CFDs are low-cost, with flexible leverage and manageable risk. CFDs are suitable for short-term trading, allowing short selling and catering to different trading styles.

Of course, CFDs have limitations: buying CFDs does not make you an actual shareholder, so you cannot vote, attend shareholder meetings, or enjoy certain rights. But for most traders, making money is the top priority, and the two main ways are: stock price appreciation and dividends, both of which CFDs can replicate.

Final advice: Clarify what you are investing in

The difference between stocks and participation rights may seem academic, but it has a huge impact on your actual investment decisions.

Before investing, you must clarify:

• Are you buying stocks or participation rights?
• Are you investing in real company ownership or trading financial derivatives?
• What rights do you have, and what rights do you not?
• If the company goes bankrupt, how much of your money can you recover?

Only by understanding these questions can you avoid unnecessary pitfalls on your investment journey. After all, knowing what you are investing in is always the first lesson.