American Depository Share (ADS) is a financial instrument that represents a specified number of shares in a foreign company held by a U.S. depositary bank. ADSs are traded on U.S. stock exchanges, allowing American investors to indirectly invest in foreign companies without the need to directly purchase shares on foreign exchanges. ADSs are denominated in U.S. dollars and provide U.S. investors with the same economic benefits and voting rights as the underlying shares. They are subject to U.S. securities regulations and are often used by foreign companies to expand their investor base and enhance their visibility in the American market.
An American Depository Share (ADS) is a negotiable security issued by a U.S. bank that represents ownership in shares of a foreign company. ADSs are created to facilitate the trading of foreign company shares in the United States. The ADSs are typically listed on a U.S. stock exchange and can be bought and sold like any other U.S. security.
To issue ADSs, a foreign company must enter into an agreement with a U.S. bank, known as a depositary bank. The depositary bank holds the foreign company’s shares and issues ADSs to U.S. investors. Each ADS typically represents a certain number of underlying shares, which is determined by the depositary bank and the foreign company.
The legal rights and obligations of ADS holders are governed by the terms of the deposit agreement between the depositary bank and the foreign company. The deposit agreement outlines the rights of ADS holders, including voting rights, dividend payments, and the ability to participate in corporate actions such as mergers or tender offers.
ADS holders have the right to receive dividends and other distributions from the foreign company, which are typically paid to the depositary bank. The depositary bank then distributes these payments to ADS holders in U.S. dollars. ADS holders also have the right to vote on certain matters, such as the election of directors, in accordance with the terms of the deposit agreement.
In summary, ADSs provide U.S. investors with a convenient way to invest in foreign companies. The legal rights and obligations of ADS holders are governed by the deposit agreement between the depositary bank and the foreign company, which outlines the rights to receive dividends, vote on certain matters, and participate in corporate actions.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 29th March 2024.
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