Different Types of Stocks

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When a corporation needs more money for business, they issue shares. There are mainly 2 types of stocks – Common Stocks & Preferred Stocks.

People generally refer to Common Stocks when they refer to stocks. Most of the stocks are issued in the form of common stocks. A common stock grants a person the right to vote in Corporation and dividend claim. If a company goes bankrupts and liquidates, common stockholders are the last ones to get paid.

Same as bonds, preferred stocks does not come with voting rights. Preferred stocks are stocks which guarantee fixed dividend to the stockholders in perpetuity. The advantage of having a preferred stock is that the stockholder will get paid before common stockholders in case the company goes bankrupt and liquidates.

Apart from these two types, the stocks can be classified into different classes of stocks. The reason of dividing stocks into different classes is to keep the voting rights limited to certain groups. These classes of stocks are structured with different voting rights and make the company difficult to takeover.

For example: There are 2 classes of stocks in a company, say Class A & Class B. Usually Class A refers to the owners of companies who has privately owned the company. Class B shares structure with different voting rights to maintain control of the company.

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