Equities - Common stock
Now that you have some grounding in equities in general, let's focus on the easier material first and discuss common stock.
What is Common Stock?
Common stock is a simple ownership interest in a publicly traded corporation. It gives the holder four distinct rights. A shareholder can do the following:
- Transfer ownership of her shares to someone else by sale or gift.
- Inspect the company's books, records, minutes from shareholders' meetings and similar items of interest.
- Preempt, that is, maintain a proportionate share of ownership by purchasing a proportionate share of any new stock issued.
- Vote on a company's important affairs, such as electing the board of directors or determining corporate policy.
- This last right can be delegated to another person, known as a proxy.
- In rare instances, classes of stock are issued as non-voting shares; buying these implies complete faith in corporate management.
Equity ownership also gives the holder the right to receive a dividend if one is declared. (Dividends are typically the mark of a mature company or a defensive stock; growth and speculative companies usually do not declare them.) Common stock dividends may be discontinued if business is poor, but dividends for preferred shares, which will be discussed later, must be paid.Types of Stock