Corporate stock, also called equity security, is an instrument used by corporations as a way to raise capital. In return for purchasing stock in the company, the buyer is entitled to voting rights or dividends of the company profit. Corporate stock is generally divided into two categories, common and preferred.
To raise additional money for investments or operating costs, a corporation may choose to sell ownership in small increments, called shares or stocks. Usually, a corporation will retain at least 51% ownership of the company, as this ensures they remain in control. Whoever owns over 50% of the stock of the company, called the controlling shareholder, is able to make all company decisions, as there is no financial way to overrule them. Some or all of the remaining 49% is made available to investors and sometimes employees, who receive certain rights in return for their ownership of corporate stock.
In common stock, stockholders receive voting rights within the corporation, based on the amount of shares they hold. Usually, common stockholders are allowed to vote on key issues, such as corporate policy. They may also be able to vote for members of the company’s board of directors. In most corporations, a shareholder is given one vote per stock, but this may change depending on the levels of stock available. Common stock may also give the holder rights to dividends, but these will only be paid after the demands of preferred stockholders have been met.
Preferred corporate stock is generally considered of higher value than common stock. While it may not carry voting rights, it will usually give preference in terms of company dividends. This means that if there is profit to be divided, the obligation to the preferred stockholders must be fulfilled before that of the common stockholder. Some preferred stocks may carry voting rights for special circumstances, such as the election of a director or the creation of more available stock. The power of preferred corporate stock also usually accumulates the longer a stockholder allows their dividends to go uncollected.
Companies may issue varying levels of preferred stocks, each carrying a separate collection of rights and obligations. In the United States, preferred stocks come in two main varieties. Straight preferred stocks carry specific rights permanently, while convertible preferred stocks can be exchanged for common stock.
As financial law and market trends change, so to do the rights guaranteed by stock shares. Companies generally vote to allow more stock availability as their income needs increase, and each issue of corporate stock may reflect the positions and decisions of the current board and shareholders. Therefore, new stockholders may have different rights and dividend policy available to them than holders who purchased their shares at an earlier time.
If you are interested in purchasing corporate stock, there are many ways available to do so. Traditionally, stock buying and selling was done through stockbrokers, who are able to help you maintain a portfolio of investments and usually try to use their market savvy to increase your money. More recently, internet stock exchange and trading companies have become popular. If you are interested in learning more about how the stock market works and wish to learn about basic investment strategies, many websites have tutorials to guide the beginner.
