Stocks and Mutual Funds - Common Stock Benefits

Stockholders enjoy significant benefits, including:

  • Proportionate share in the company profits (in the form of dividends and capital gains)

  • The right to voteon matters, such as the selection of the board of directors and other ballot issues; one vote is allowed for each share of stock owned (see below):
    • Statutory voting - with this most commonly used system, stockholders are allowed the number of votes per shares of stock owned times the number of open board of director positions. However, one can't vote more than their number of shares for any one director (for example, if you own 50 shares of stock and there are six open positions, you could cast 50 votes for each director).

    • Cumulative voting - with this system stockholders get the same number of votes as in statutory voting but can cast a disproportionate number of votes for any one director (for example, one could cast all 300 votes for a single director).

    • Proxy voting - if stockholders are unable to attend the annual meeting in which the voting is held, they may vote in advance on a proxy ballot sent in prior to the meeting.

Exam Tips and Tricks
Consider this sample exam question:

The correct definition of Treasury stock is:

  1. Outstanding stock minus authorized stock
  2. Issued stock minus outstanding stock
  3. Authorized stock minus outstanding stock
  4. Issued stock minus authorized stock

The correct answer is "b", since Treasury stock is made up of issued shares that have been repurchased, so they are no longer outstanding shares.

Preferred Stock
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