Types of Stocks

The different types of stock are what confuse most first-time investors. That confusion causes people to turn away from the stock market altogether, or to make unwise investments. If you are going to play the stock market, you must know what types of stock are available and what it all means!

Stock implies the ownership or share in a corporation. It gives the stockowner the right to claim a share in the assets and income of the corporation. Investors in common stocks are entitled to one vote per stock owned to take decisions in the general meetings and also to elect board members, the people who oversee major decisions made for the company as a whole, for a particular company.

Common Stock is a term that you will hear quite often. Anyone can purchase common stock, regardless of age, income, age, or financial standing. Common stock is essentially part ownership in the business you are investing in. As the company grows and earns money, the value of your stock rises. Common stockowners get dividends declared by the company. On the other hand, if the company does poorly or goes bankrupt, the value of your stock falls. Common stock holders do not participate in the day to day operations of a business, but they do have the power to elect the board of directors.

Along with common stock, there are also different classes of stock. The different classes of stock in one company are often called Class A and Class B. The first class, class A, essentially gives the stock owner more votes per share of stock than the owners of class B stock. These are called shares with differential voting rights. These are denoted by DVR suffixed to their names. Many investors avoid stock that has more than one class, and stocks that have more than one class are not called common stock.

Preferred Stock: The most upscale type of stock is of course Preferred Stock. Preferred stock isn’ t exactly a stock. It is a mix of a stock and a bond. Preferred stockholders purchase stock in a certain company for monetary gain only in that their main goal in investment is earning a return on investment. The owners of preferred stock can lay claim to the assets of the company in the case of bankruptcy, and preferred stock holders get the proceeds of the profits from a company before the common stock owners. If you think that you may prefer this preferred stock, be aware that the company typically has the right to buy the stock back from the stock owner and stop paying dividends.

Preferred stocks with voting rights: Preferred stock members can opt for the right to vote in a company in that they own stock. By doing this, they ensure the power to make sure that they receive all monies owed to them because they are able to bribe people into places of management.

Preferred Stocks with adjustable dividend rates: Preferred stockholders receive an agreed upon profit based on stipulations provided by the company.

Convertible Stock - Preferred stockholders have the right to convert their preferred stock into common stock, allowing the investor to lock in their profit while they potentially profit from a rise in common stock.

Participating Stock - With this type of stock, preferred stockholders not only receive a set profit, but are also eligible for a dividend along with the common stockholders.

A stockowner is not liable to losses in case the company closes and has loans to pay back. The loss of the stockholders is limited to the money that would have been made by converting the assets into cash since all the money would be used to repay the loans to the creditors. The liability of the stockholders is limited to the calls unpaid on these stocks.