What is a stock?
A stock is a general term used to describe the ownership certificates of any company. A share, on the other hand, refers to the stock certificate of a particular company. Holding a particular company’s share makes you a shareholder.
Stocks are of two types—common and preferred. The difference is while the holder of the former has voting rights that can be exercised in corporate decisions, the later does not. However, preferred shareholders are legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.
Common stock shareholders can generally vote on issues, such as members of the board of directors, stock splits, and the establishment of corporate objectives and policy.
While having superior rights to dividends and assets over common stock, generally preferred stock does not carry voting rights.
Many of the voting rights of a shareholder can be exercised at annual general body meetings of companies. An annual general meeting is a meeting that official bodies, and associations involving the public, are often required by law to hold.
If a preferred share has cumulative dividends, then it contains the provision that should a company fail to pay out dividends at any time at the stated rate, then the issuer will have to make up for it as time goes on.
Convertible preferred stock can be exchanged for a predetermined number of company common stock shares.
Often times companies will keep the right to call or buy back preferred shares at a predetermined price.
Participating preferred issues offer holders the opportunity to receive extra dividends if the company achieves predetermined financial goals.
Sometimes, dividends on preferred shares may be negotiated as floating; they may change according to a benchmark interest-rate index.