Share Market

A stock is the original capital paid or invested into a business by its founders. It provides a sense of security for the creditors of a business as come what may, it cannot be withdrawn for the creditors (except only in case where the business is closed down). It’s different from the terms property and assets of a business as they can fluctuate in both quantity and value.

Stock is typically in the form of shares, that too in two types: Common stock and Preferred stock. In terms of being a unit of ownership, common stock carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in the form that it does not give any form of voting rights with it. With Preferred stock you get a certain level of dividend payment before any dividend is issued to other shareholders.

Common stock is true to its name, very common amongst the stockholders. By means of capital growth they yield higher returns than almost every other investment. This higher return comes at a cost since common stocks have a very rate of risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred stock has some degree of ownership in a company but does not have same voting rights as that of common stock. It is very different from the common stock which has variable dividends that are never guaranteed. An advantage with this kind of stock is that in the event of liquidation, preferred shareholders are paid off before the common shareholder.

There is another form of Preferred stock called Convertible preferred stock. It includes an option for the stockholder to convert the preferred shares into a fixed number of common shares. This can be usually done at any time after a predetermined date.

Apart from the two main types of stock there can be many other forms too. Companies can customize their own different classes of stock in any way they want. This is mostly done to limit the voting power to only certain sections of the group. For example, one class of shares would be held by a select group who are given 20 votes per share while a second class would be issued to the majority of investors who are given one vote per share.