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Once you have decided to invest in the stock market then you start hearing the terms common stock, preferred stock, type A and type B.
Well what are they, how much risk they carry and what happens to the stock in terms voting rights.It is these voting rights that determine who has the voice to be heard during the annual general meeting of the board.
I will be discussing common stock first and this stock is the one which will be issues to all shareholders and this type or class of stock carries maximum risk. In fact in the event of the liquidation of the company it is this stock which will be given least preference and will be given whatever is left off the company once everyone else has been paid off.
Agreed that these shares carry higher risk but the fact is that these shares also have the most appreciation and that is why general shareholder will only buy common stock.
As compared to common stock the preferred stock is the one which will be paid off before the common stock shareholders. Preferred shareholders do not have any voting rights but they do get some amount of fixed dividend. The preferred stock is less risky than the common stock.
For giving more voting power to certain type of shares the companies have Class A and Class B shares. Class A shares will have five or may be ten votes per share whereas Class B shares will only have one vote per share. This way there is more voting power for certain section of investors.
Make sure to read the companies charter,bylaws and prospectus before investing as a careful investor is likely to make more money than a casual investor.
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