Stock is a certificate of ownership in a company or corporation.
It represents the claim on the company’s assets and earnings.
When you hold a company’s share you become the shareholder of that company. There are two types of stocks:
Common stock represents ownership in a corporation.
Common stockholders have voting rights and can control corporate decisions.
They have the right to elect the board of directors and voting on corporate policies.
At the time of liquidation, common stockholders have the right to a company’s assets only after the bondholders, preferred shareholders, and other debt holders are paid in full.
Preferred Stocks A Preferred stock is an ownership that has a higher claim on the assets and earnings of the company than common stocks.
Preferred stock is commonly known as preference share.
Preferred stocks have the features of debt and equity.
In the debt feature preferred stock gets the fixed dividends and inequity has the potential to appreciate the price.
The dividend to preferred shareholders is paid before it is paid to common shareholders.
Preferred stocks usually do not have voting rights. At the time of bankruptcy, the preferred stockholders are entitled to pay before the common stockholders.
Preferred stocks with special conversion rights are known as convertible preferred stocks or convertible preferred.
It means the preferred stockholders get an option to convert its preferred stocks into a fixed number of common stocks after a predetermined date.
Most of the time the conversion happens at the request of shareholders but sometimes companies are allowed to force conversion. Convertible preferred stocks are used by corporates for fundraising purposes.