Components of Common Stock
Companies raise money to begin or grow their businesses by issuing stocks. Each stock is a share and your ownership stake depends on what percentage of their stocks you own.
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Definition
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There are two type of stocks: regular and preferred. Regular stocks are known as "common stock."
Terms
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People who own common stocks are known as "common shareholders" and are allowed voting rights. Generally, you get one vote per share. Shareholders elect a board who oversee the day-to-day operations.
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Benefits
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As a common shareholder, income comes from capital appreciation and periodic dividends. Common stocks generally perform better than other types of investments.
Preferred Stocks
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Despite what the name implies, preferred stock does not have the same potential; these stockholders are paid fixed dividends.
Rights
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Common shareholders have "preemptive rights," which assures the rights to purchase any new stock offerings from the company in the event they have a new issue of stock. You are not obligated to purchase.
Risks
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If the company files bankruptcy or liquidates, common shareholders are paid only after bondholders, preferred stockholders and debtors.
Prospectus
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When considering a company you would like to invest in, ask for a prospectus, which describes details about the company or do your research on the Internet. Most investment portfolios contain stocks as a basic investment.
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