What are different types of stocks -learn stock market basics

 WHAT ARE DIFFERENT TYPES OF STOCKS? 

When an organization is first founded, the sole shareholders are the co-founders and early investors. For example, if a startup has 2 founders and one investor, every may own one-third of the corporate’s shares. because the company grows and wishes additional capital to expand, it's going to issue more of its shares to different investors, so the initial founders may find yourself with a well lower share of shares than they started with. throughout this stage, the company and its shares are thought-about private. In most cases, private shares aren't simply exchanged, and therefore the variety of shareholders is usually small because the company continues to grow, however, there typically comes some extent wherever early investors become wanting to sell their shares and legalise the profits of their early investments. At constant time, the company itself might have additional investment than the tiny variety of private investors will offer. At this point, the company considers an initial public offering, or IPO, reworking it from a private to a public company except for the private/public distinction, there are 2 forms of stock that firms can issue: common stock and preferred shares.

Common stock once folks point out stocks they're typically relating common stock. In fact, the good majority of stock is issued is during this form. common shares represent a claim on profits (dividends) and confer balloting rights. Investors most frequently get one vote per share-owned to elect board members who supervise the most important choices created by management.

Over the long term, common stock, by means that of capital growth, has attended yield higher comes than company bonds. This higher return comes at a cost, however, since common stocks entail the foremost risk as well as the potential to lose the complete quantity endowed if a company goes out of business. If a company goes bankrupt and liquidates, the common shareholders won't receive cash till the creditors, bondholders and most popular shareholders are paid. 

Preferred stock functions equally to bonds, and frequently doesn't keep company with the balloting rights (this might vary betting on the company, however in several cases preferred shareholders don't have any voting rights). With preferred shares, investors are usually warranted a set dividend in perpetuity. this is often completely different from common stock that has variable dividends that are declared by the board of administrators and ne'er guaranteed. In fact, several firms don't disburse dividends to common stock at all.

Another advantage is that within the event of liquidation, preferred stockholders are paid off before the common shareholder (but still when debt holders and different creditors). stock can also be “callable,” that means that the corporate has the choice to re-purchase the shares from preferred shareholders at any time for any reason (usually for a premium). An intuitive thanks to consider these types of shares is to ascertain them as being somewhat in between bonds and common shares.

Common and preferred are the 2 main varieties of stock; however, it' conjointly attainable for firms to customise completely different categories of stock to suit the requirements of their investors. the foremost common reason for making share categoryes is for the company to stay balloting power targeted with an explicit cluster. Therefore, different classes of shares are given different voting rights. For example, one class of shares would be control by a get group who are given maybe 10 votes per share whereas a second class would be issued to the bulk of investors who are given only one vote per share. once there's quite one class of stock, the categories are historically selected as category A and sophistication B, etc.. For example, have Warren Buffett’s company county Hathaway has 2 classes of stock, pictured by putting the letter behind the ticker image in a very kind like this: "BRKa, BRKb" or "BRK.A, BRK.B" 

WHAT ARE STOCKS - basics-of-stock-market-what-are-stocks