Stocks and shares can be defined in many ways. A stock is the amount of capital financed by a joint stock company or corporation by issuing shares. An individual or any business entity who has purchased a portion of stock is known as the shareholder.
The sum total of the value of shares issued by a joint stock company is known as the market capitalization. In countries like Australia, South Africa, and the United Kingdom, stocks and shares have the same meaning and usage, however, the term stock is also used for describing various financial instruments, for example, government bonds, as well as every type of marketable securities.
In the United States, the term stocks is frequently used as an equivalent word for shares. Nevertheless, outside North America, this is used to a lesser extent.
Usually, the stocks and shares are categorized into the following types:
Common stock or Common Shares
This is the most basic form of stock in a joint stock company. Common stock is also termed as equity share or ordinary share. If there is a buy back of equity shares by the company, then these shares are known as treasury stock.
Treasury stock is utilized for a wide range of corporate functions. Regarding corporate decision making, equity shares enjoy voting rights, however, to a lesser extent in comparison to preference shares or stocks. In the event of liquidation of a company, the equity shareholders have almost the last priority with regards to repayments. In case of payment of dividends, the preference shareholders receive it first, then the rest is paid to the equity shareholders.
Preferred stock is also known as preference shares or preference stock. In case of allotment of dividends and distribution of assets, this type of shares enjoys priority over equity shares. Preference shareholders enjoy voting rights in corporate decision making issues.
Dual Class Stock
This type of stock or shares are issued for only one company which has different categories suggesting separate rights with regards to payment of dividend and voting. Every type of share bears its own category of shareholders entitled to distinct rights.
When there is a buy back of equity shares issued to the public, it is known as treasury stock. They are regarded as issued, however, not as outstanding.
This is a special type of share which offers the shareholder a right to vote against the decision of the board of directors. Usually, this type of shares are found in European nations.
Last Updated on : 26th June 2013