Which shares of Shell Company should you own?
Knowing which option to stake your investment on is hard. If it were easy, everyone would be Warren Buffet. But, when it comes to choosing the right shares, it can mean the difference between losing and winning.
What are the differences between RDS.A and RDS.B?
One of the main differences between RDS.A and RDS.B Royal Dutch Shell shares is that A does not allow voting rights. If it is important to you to help influence the way the company chooses various things in the future, you would want to go with the B option. To some people, that’s not as important.
Perhaps you don’t want to feel like you’re a small part of the decision-making process within the company. If that’s so, then either side of the split could appeal to you.
The difference summarized:
- No Voting Rights
- First-right to Assets during Bankruptcy
- Has a 15-25% withholding tax for foreigners (US citizens included)
- Based in Amsterdam (Subject to Netherland/Euro Tax Regulations)
- Has Voting Rights
- Shareholders get screwed even more during bankruptcy
- No Withholding Tax for US Citizens or most foreigners
- Based in London, UK (Subject to UK tax laws/regulatory changes)
RDS.A Provides a Insurance
One good thing about RDS.A shares is that you’ll have the first rights to assets in the event of a bankruptcy. There is no such clause in RDS.B. If the company declares bankruptcy, you will lose everything you have invested. This is important if losing the amount invested would mean a financial hardship for you. Remember never to invest any more than you can feasibly afford to lose. Investing in even successful companies carries a risk. So do your homework first and invest wisely.
You’ve probably heard how important location is in real estate. Did you know it is also important with companies that you invest in. Sure it is! Especially when that company is based in a country whose tax rate can greatly affect your overall profit and loss. Looking at these two parts of the famous Shell company, we see that RDSA is based in Amsterdam. What does this mean to you, the investor? It means they will have no obligation to abide by U.S. or UK tax laws. But they are subject to the tax laws of The Netherlands and/or European tax regulations. Based on this information, it is critical that you know the tax laws that will likely influence your trade if you choose company A.
Company B is subject instead to UK (United Kingdom) laws instead. If you live in the UK (or even if you don’t), the fact that Shell Company B is located physically in the UK region, you will have to abide by the tax laws that govern the UK area of the European Union. Study up on this if you plan to invest.
What about Withholding Tax?
You may not base your decision to invest on the tax laws of the land, but if you are purchasing shares in either of these properties, it’s important to consider that you’ll be faced with this within a year of when you purchase stocks. If you choose Shell company A, you will be subject to a 10-15% withholding tax. This applies to all foreigners (US and others). Why? Because all of these territories are considered “foreign” to Shell company A.
The advantage to company B is that there is no withholding tax for anyone, including those who invest from foreign soil. So you’re home free with this choice regarding that issue.
Do your voting rights matter or is it just a ‘by proxy’ optical illusion?
If your voting rights actually were shown to make a difference in what happens in the company, would you choose company B? Your vote does count, but in the case of a company as large as Shell, don’t make the decision on which company to choose on this factor alone. How realistic is it that, even if you get a vote, there will be enough like-minded individuals to sway the CEO to moving one way or the other on the important issues just because people want it that way?
We’re not saying company heads don’t listen to customers and shareholders. They do. In fact, one of Steve Job’s most grandiose moments and epiphanies was when he realized he needed to listen to customers before making something new, rather than building it and hoping they’d come. Once he really learned to listen to the consumer, Apple became a driving force that is still strong today.
Still, if you feel your voting share is not going to be significant enough to result in the changes you want, you may want to go with Company A, where you have no voting rights but you’d get immediate relief if the company ever goes “bottom up.” Having that financial insurance clause in the event of a tragedy may prove a more viable factor in the decision than the privilege of having voting rights.
Will the Bankruptcy Clause Pay Off?
Einstein once said, “Question everything.” Just as we want to use a microscope on the voting rights clause of Company B, we also need to drill down on the bankruptcy protection clause of company A to see if their offering is better because of this. If you ask the company, I’m sure they’d say, “Yes.” But if you asked neural investment specialists they might disagree because bankruptcy is too unpredictable in terms of what will or won’t happen to stock during a bankruptcy proceeding that it’s almost impossible to tell whether it would stand up over the long haul.
The Dilemma of Logic
So which stock should you own? Which is better? What we really have here is a laundry list of great clauses that each part of the company offer (in a perfect world), v. what usually happens in the real world. The ideal v. the real, perhaps.
We live in a real world. And that means we have to prepare for the unexpected. Maybe you will take a total loss if your investment companies go bankrupt. Are you really sure you can trust their spec sheet of offerings to save you?
Let’s be real.
When it comes to investing, nothing is certain.
Prices as a Driving Factor
In the past, more people chosen to invest if company A because it was less expensive to own. Now that this is no longer the case, it’s more difficult to pick the winner. So what next? How do you make a decision of which Shell subsidiary to invest in?
If you want to use price as a factor (purchasing the lower cost stock, for example), you can choose to invest in whichever stock is lower on the stock market at the time you decide to purchase stock. But beware of using this as the only factor. Why are stocks usually lower? Because they are losing value. It may be (and usually is), a temporary thing, but it is still true.
Before you plunge in with the lower stock price, you will want to consult with a stock broker or financial advisor who is more familiar with the Shell company as well as the stock market in general.
Someone will more experience in the market is always going to be able to show you more of a “birdseye view” of the market rather than just a snapshot of one day, the day you decide to invest.
Start Small at First
Just as any business venture should start small, so should your investment portfolio. When investing in a company like Shell, remember that the market is going to shift and wane, depending on a number of different factors, including:
- Stock market prices in general at the time of inquiry
- Supply and demand for what the company has to offer
- Adversarial conceptions of the product by the general public
- The price of production (crude, manufacturing, reserves)
- Public sense of confidence in the markets
If you have to choose one factor, pick this one
We have talked about a wide variety of factors that may or may not influence the success of a bid for Company A or Company B in company stock. We’ve talked about the voting shares and the bankruptcy clause (or lack of) that may help in the event of a loss, but neither of these factors is proven to be solid or predictable.
We discussed using price to decide, based on choosing the more affordable stock at the time you invest. However, this too is a myriad of question marks due to the fact that none of these are guaranteed.
If you are making your decision based on anything specific, it should be the answer to this question:
Do you expect the price of oil to come up in the near future?
If the answer is “yes,” then the Shell subsidiary that can show their ability to tap into this factor and maximize your returns should be your main focus.
Typically, the company with the few restrictions and regulations should be the winner since there will be less red tape to go through once you have put your money in the company you choose. But the management and operation of the company also matters. Once the oil comes in, how are the CEOs and chairmen going to handle distribution and maximize revenue? Those are the main questions you need answered.
Q. What factors are most important when choosing which Shell company to invest in?
A. There are so many unpredictable factors in the market today, but the most likely way to ensure you are investing wisely is to consider price, voting share rights, and tax implications. But don’t try to do this without the helpful advise of a professional financial advisor.
Q. Is having voting rights an important factor?
A. Yes and no. If you could be assured that you’d really have a say enough to change things, voting rights would be a nice perk. But rarely are CEOs influenced by outside activism. Don’t use the ability to vote as your main impetus in your decision. It may not make a difference in the end.
Q. What happens in a company bankruptcy?
A. If you are planning on investing in a company, realize that no company wants to file for bankruptcy. But many of them end up doing just that because of poor management, lack of resources, failure to expand beyond the target audience, and the market in general, to name a few. In a bankruptcy, the goal is for the court to clear all indebtedness using the resources the company has at the time of the bankruptcy and collect any assets. This means your investment will more than likely be lost to clear the debt.
Q. How do you decide which company to invest in between the two Shell companies?
A. Very carefully. Both are relatively successful in the market but offer no exciting capital gains. Consult with a stock brokerage firm and financial advisor who knows the market and can study the trends of both sides of this company to advise you wisely on the most likely outcome and potential return of your investment.
Investing in stock is perhaps the biggest gamble people can take with their investment money. But it is also one of the most lucrative tracks that you can follow if you know what you are doing. Think about where you take your car if it is not operating properly. Do you try to fix it yourself or take it to a certified mechanic? Unless you have a mechanic’s license yourself, you would take it to a mechanic you trust.
Shell Company will continue to see a profit unless the bottom falls out of the oil business. It may be threatened a bit by the idea of electric cars and vehicles, but do you honestly believe the masses are going to go for this idea in the long run? Probably not.
Still, the future is unknown. So the best thing you can do when seeking advice is to go to an expert who knows the market. When choosing whether to invest in rds a vs rds b Shell, call on an expert.