An American depositary share (ADS) is an equity share of a non-U.S. company that is held by a U.S. depositary bank and is available for purchase by U.S. investors. The entire issuance of shares by a foreign company is called an American Depositary Receipt (ADR), while the individual shares are referred to as ADSs, Investopedia suggests.

The first ADR was introduced by J.P. Morgan back in 1927 for the British retailer, Selfridges. An ADR is a financial product that trades in the US financial markets but represents securities of a foreign company.

Essentially, ADRs make it easier for US investors to invest in foreign companies, as the complications of purchasing the shares in the company’s domestic markets are eliminated. The US custodian bank holds the economic and corporate rights of the shares, and the foreign company can opt to list its shares on major exchanges, such as Nasdaq, NYSE, or OTCC.

The entire issue of all the shares is called the ADR, whereas individual underlying shares are American Depositary Shares (ADS). ADS usually comes into play because securities law prevents most corporations listed in a foreign market to directly list on US exchanges. As foreign companies still want a way to sell shares in the US, they will create ADS.

American Depositary Shares are essentially the same as common stocks in terms of rights. An investor is still getting ownership of the company and will still receive the same type of benefits, such as dividends. The ratio between ADS to common stocks is usually one to one, but in rare cases, it can be of a different proportion, according CFI.