Different Types of Stocks



The two main types of stocks are common stock and preferred stock.

Common Stock 

The word itself defines this type of stock, it’s “common”. When talking about stocks, they typically pertain to this type. Basically, most of the stocks are issued in this form, as it represents a company ownership and a claim (dividend) on a profit portion. Investors are getting one vote per share to elect for a board member who watch over such major decisions implemented by the management.

In the long run, by means of growth in the capital, the common stock set higher returns on yield compared with other investments. Since common stocks involve risk, higher return comes at a cost. If a firm goes bankrupt and liquidates, the common shareholders will refrain from acquiring money unless the creditors together with bondholders and preferred shareholders are paid.

Preferred Stock 

Preferred stocks represent a certain degree of company ownership, but typically don’t possess same voting rights and may be different depending on the firm. Investors are guaranteed a continuous fixed dividend with preferred shares. It is quite different compared to common stock that contains variable dividends, which are never guaranteed. In terms of liquidation, the preferred shareholders are paid first before the common shareholder, however, they’re being paid off after the debt holders. Preferred stock is callable, which means that the firm has the capability to buy shares from shareholders anytime for any reason. It is basically for premium.

Investors consider preferred stock as debt rather than an equity. These types of stocks are appropriate between bonds and common shares.



Different Classes of Stock 

The two main forms of stocks are common and preferred. Customizing different classes of stocks depends on the firm. The primary reason for this is for the group to remain its voting capability. Thus, different voting rights are implemented on different classes of shares. For instance, a chosen group will hold a class of shares which comprises of ten votes per share, while the second class will be assigned to the majority of investors which comprise of one vote per share.

A greater than one class of stock are basically organized as Class A and Class B. Berkshire Hathaway consists of two classes of stock. Its ticker is BRK. The representation of the different forms are placed in letter behind the symbol of a ticker. For example, "BRKa, BRKb" or "BRK.A, BRK.B".

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