Pro rata share

Pro rata is Latin for "in proportion," and a pro rata share is simply the slice of something that corresponds to your ownership stake. If a company pays out a dividend, each common stockholder receives a pro rata share — the payment is divided according to how many shares each investor holds, so an investor who owns 1% of the outstanding shares receives 1% of the total dividend.

The math is straightforward. Suppose a company declares a $1,000,000 total dividend and has 500,000 shares outstanding. That works out to $2.00 per share, so an investor holding 300 shares receives 300 × $2.00 = $600. No shareholder can be favored over another within the same share class; the distribution must be proportional.

Pro rata allocation shows up throughout finance. Mutual fund shareholders receive pro rata shares of the fund's dividend and capital gains distributions. In a rights offering, existing stockholders receive rights in proportion to their holdings so they can maintain their ownership percentage. Certain collateralized mortgage obligation (CMO) structures pass principal and interest to tranches on a pro rata basis, and in a corporate liquidation, claimants at the same priority level are paid pro rata from whatever assets remain.

The concept of a pro rata share appears across the SIE, Series 7, and Series 65 exams — most commonly in questions about common stockholders' right to receive dividends, mutual fund shareholder rights, and how distributions are allocated among investors.