Stock Market Investment: Share Holder Classifications

Stock Market Investment

There are two stock market investment share holder Classifications of stock:

  • Common Shares

  • Preferred Shares

Common shares is usually what is issued to the general public. The term common Stock doesn’t carry any negative connotations, but rather indicates that it is the "standard" stock the company has offered. Common shareholders have voting rights.

And as the word suggests, "Preferred" shares has certain advantages over common stock.

First, preferred share holders are paid dividends on their stock market investment before common share holders. And if a company isn't doing well, the Common stock dividend is eliminated first.

Second, is if a company goes out of business, the owners of preferred shares have prior claim to any assets that remain when the company is dissolved and after bond holders and other creditors have been paid.

Owners of common stock are the last in line to pick up the pieces of the fallen corporation.

There are disadvantages to owning preferred shares. Preferred shares have no voting rights. Also, the price of preferred shares tends to rise more slowly that the price of common shares.

As owners, common share holders elect a corporation's Board Of Directors. The board of directors is a group of individuals, which are responsible for managing the affairs and growth of the corporation. The power of the board usually extends beyond that of the founder of the company.

The power resides in this board because the board is in the position of representing the share holders as a group.

Normally, owning one share of common stock gives you the power of one vote. If you have control a large number of shares, you will have more influence on the outcome of elections.

At worst, common share holders can lose their entire stock trading investment if their company fails. In such a case, a company may be sold or liquidated and its remaining assets distributed among creditors, such as banks and bondholders.

Shareholders would receive proceeds only after theses more senior claims are satisfied.

In order to make money, the individual share holder must sell his shares back to onto the market, through a Stock Exchange and their Stock Brokers.

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