Common Stock VS Preferred Stock: What is a Common Stock

No stock is created equally and exactly the same. Just like with forex trading where there are other currencies that you can choose from, there are also stocks that will be more enticing than others.

There are two main types of stock that companies offer: common and preferred stock. Each of these offers its own distinct advantage and disadvantage.

Stocks are sometimes referred to as equities or securities. This is because purchase an equity, or ownership, of the company, it is called security for the same reason since you will be securing a share of ownership in the company.

This means that you are now, or will be, a business owner.

Common stock and preferred stock share this similarity. They both represent a degree of ownership in the company.

If you own a common stock, this will give you the opportunity to vote in the election of the board of directors. While owning a preferred stock will mostly guarantee the delivery of dividends but it does not come with voting rights.

Owning either stock will give you the righto a piece of the company’s profits. One of the ways for the profits to be delivered is through dividends. These are often paid in cash and are taken from the earnings of the company. Dividends are usually paid in a quarterly basis.

Common Stock

Common Stock in keyboard
Definition: A common stock is a type of security that can be used as proof of ownership to a company. It also gives the owner voting rights on the company matters. Unlimited proportionate claim on the assets and income of the firm are given to the owner but only after the claims of lenders and the other obligations of the company are satisfied.

Owners of common stocks have the power to vote on company matters (e.g. election of new directors to the corporation’s board) but are last to receive their money back if a company ends up in bankruptcy.

This is most likely the kind of stock that will come to mind when you first hear the word “stock” in relation to the financial world. A common stock is the most common type of stock issued by companies.

Being an owner of a common stock will give you “preemptive rights.” This is to help keep the same proportion of ownership in the company as time passes. If another offering of stock is made by the company, you as a shareholder will be able to buy as much stock as you need in order to keep your ownership comparable.

Common stocks also have the potential for profits through capital gains. Owning this kind of stock cannot assure you that you will receive dividend payments. You should first consider your tolerance level for investment risk before investing in common stock.

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