Stocks are all the stocks that are part of a company. In simple English, the stocks are collectively referred to as “stock”. Each individual share of stock represents a fractional ownership in proportion to its total number of outstanding shares. The more shares of stock issued, or the number of stocks, a company possesses, the more it can trade for profit. There are basically two kinds of stocks – common stock and preferred stock.
Different stocks have different characteristics. Common stock has voting rights and may be traded publicly, while preferred stocks are not traded publicly and have limited trading rights. The prices of these two different types vary according to a number of factors, including supply and demand and economy-related factors. Some companies issue a new kind of stock known as a penny stock, but the market value of this type of stock is usually less than that of other common stocks. Usually, penny stocks are traded on online trading sites.
A shareholder owns a share of a company if he or she: a) has a legal right to receive dividends each year from the sale of common stock; and b) the company must regularly pay him or her a dividend, usually on an annual basis. All shareholders must therefore agree to a written agreement before the sale of shares takes place. This agreement normally includes the amount of dividends to be paid and the date of payment. The shareholder also wants to know that his or her rights will not be altered without his consent.
Dividends are paid to shareholders periodically in exchange for their shares of stock being sold. Dividends are paid depending on the earnings of the business. The amount of dividends depends on how much the company earns per year and the total market capitalization of the company. Market capitalization is the overall size of a company’s assets, including its net worth, equity and other intangibles. Market capitalization is a historical measure of how much a company is worth. Some stocks have the designation of ‘open market’ which gives companies a wider range of potential investors.
Common stock shares have voting rights and holders are entitled to dividends only upon their sale at an agreed upon price. The selling price of a common stock does not have to be determined by a Board of Directors unless there are qualified dividends. If there are no qualified dividends, then the company can set the selling price. There are two types of common stock – common stocks and preferred stocks.
Preferred stocks have none of the voting rights attached to preferred stocks. However, they do have limited liability. When an investor owns preferred stocks, he or she is considered to be the owner of a separate account and is entitled to dividends according to the method of distribution agreed upon. Common shareholders and other investors do not receive dividends. This is because the distribution method is decided by the Board of Directors.