When people refer to shares in the stock market, they are referring to stocks. A stock represents partial ownership of the company. When a company performs well financially, stock buyers gravitate toward purchasing stock in that company, which increases demand and drives up the price. The value of the stock increases. Conversely, when the company performs poorly, stock buyers gravitate away from that company, which lowers the prices and drives the value down. Stock shares are a form of investment, and there are different types of stocks.
Common Stock
Most shares in a company are issued as common stock. With ownership of a common stock share, you are entitled to voting on some issues that relate to the company. The typical voting method is one vote per share of common stock, although this is not always the case. Some issues that are voted upon include stock splits, company objectives and the election of the board of directors. People with common stock are the last group to be considered for company assets, though. This means that common stockholders receive their dividend payments only after all of the preferred stockholders have received their payments.
Preferred Stock
Preferred stockholders, like common stockholders, have partial ownership of the company. Holders of preferred stock, however, do not having the voting privileges the holders of common stock possess. However, in addition to be first in line to receiving dividend payments, holders of preferred stock have a greater claim to company assets. This means that in the case of a company bankruptcy, the preferred stockholders are paid before the common stockholders.
Types of Preferred Stock
There are four general types of preferred stock. Cumulative preferred stock will accumulate dividend payments that were withheld due to the company's financial problems. Non-cumulative preferred stock does not accumulate these skipped payments. Participating preferred stock pay dividends that are higher than normal if company profits are higher than projected. Convertible preferred stock is preferred stock that can be converted to common stock.
Classes of Common Stock
In some situations, common stock is divided into classes. These classes pertain to the number of votes that each stock gives the stockholder. An example of this would be for a Class A stock giving the stockholder 10 votes while a Class B stock giving the stockholder one vote.
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