Types Of Stocks For Investing - Common Stock

Once you have decided to invest in the stock market then you start hearing the terms common stock, preferred stock, type A and type B.

Well what are they, how much risk they carry and what happens to the stock in terms voting rights.It is these voting rights that determine who has the voice to be heard during the annual general meeting of the board.

Let us first discuss common stock, common stock is the common stock of share issued by the company and these common shareholders holding common shares elect a board of directors which in turn oversees the corporate policy. However common stock holders carry the maximum amount of risk because let us say if the company goes into liquidation then the company will first pay the debtors such as banks etc from whom they have taken loans and then they pay preferred stock holders and the last come the common stock holders which in all reality cannot ask for their share in the liquidation till everybody else is paid off. However most investors who invest in the stock market will like to take risk anyway because the risk has its own rewards as the common shares will typically appreciate in value if the company is doing well.

Now if we compare common stock with the preferred stock the difference lies in the fact that the preferred share holders have claim on the earnings and assets before the common share holders and in the event of the bankruptcy preferred stock holders will be paid off after the creditors have been paid. The preferred share holders generally do not have any voting rights but yes they do have a certain amount of fixed dividend that is paid to them.

There are types of classes that you will also encounter in the stock market usually Class A and Class B shares. The Class A shares typically will have ten or five votes per share and the Class B shares will have one vote per share. The classification of shares as Class A or Class B can be exactly the opposite for some companies as the companies try to cloak the kind of voting power certain types shares hold. The need for the classification occurs because companies try to provide more voting power to certain section of investors.

Make sure to read the companies charter,bylaws and prospectus before investing as a careful investor is likely to make more money than a casual investor.

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