What is the difference between ADRs and ordinary shares?

When investing in foreign companies, investors often encounter two key types of stock instruments: **ADRs (American Depositary Receipts)** and **ordinary shares**. Both are related to owning a piece of a company, but they function differently, especially in terms of how they’re traded, what they represent, and how investors use them. Understanding these differences can help you make better investment choices when considering global opportunities.

1. What Are ADRs (American Depositary Receipts)?

ADRs are financial instruments that represent shares of a foreign company traded on U.S. stock exchanges. They allow U.S. investors to buy shares in foreign companies without dealing with the complexities of foreign markets or currencies. ADRs are issued by U.S. banks, which hold the actual shares of the foreign company in trust and issue the ADRs as a receipt for those shares.

• Created for U.S. Investors: ADRs make it easier for U.S. investors to buy foreign stocks, as they are traded in U.S. dollars on U.S. exchanges like the NYSE or NASDAQ.
• Ownership Representation: Each ADR represents a specific number of shares of the foreign company or a fraction of a share.
• Dividends and Conversions: ADRs pay dividends in U.S. dollars, and the U.S. bank converts the dividend payments from the foreign currency to USD.

2. What Are Ordinary Shares?

Ordinary shares, also known as common shares, are the regular stock issued by a company. These shares represent ownership in a company, and their holders are entitled to a portion of the company’s profits, usually in the form of dividends. Ordinary shareholders typically have voting rights at the company’s general meetings and can influence decisions such as electing board members.

• Direct Ownership: Ordinary shares represent direct ownership in a company. Investors are purchasing a stake in the company and its future potential.
• Voting Rights: Holders of ordinary shares usually have the right to vote on important company matters, such as mergers or electing directors.
• Dividends: Investors in ordinary shares may receive dividends, but the amount and frequency depend on the company’s profitability and dividend policy.

3. Key Differences Between ADRs and Ordinary Shares

While both ADRs and ordinary shares represent ownership in a company, they differ in several ways. Below is a comparison of key aspects:

Aspect	ADRs	Ordinary Shares
Trading Venue	Traded on U.S. exchanges like the NYSE or NASDAQ	Traded on the stock exchange in the company’s home country
Currency	Traded in U.S. dollars	Traded in the local currency of the company’s home country
Dividends	Paid in U.S. dollars	Paid in the local currency of the company
Voting Rights	No voting rights (unless specified)	Full voting rights as a shareholder
Direct Ownership	No direct ownership of foreign company stock	Direct ownership in the company

4. Conclusion

ADRs and ordinary shares are both valuable financial instruments for investing in foreign companies. The main differences lie in where they are traded, how they are denominated, and the rights that come with owning them. ADRs offer a more accessible route for U.S. investors to gain exposure to foreign markets without the hassle of currency exchange or overseas trading. On the other hand, ordinary shares provide direct ownership, voting rights, and a deeper connection to the company's performance.