Two Main Types of Stock Investments
Stock is the shares in the corporation that are individually owned by a shareholder. In American English, the stock is collectively referred to as “stock.” A single share of stock represents fractional share ownership in percentage terms of a corporation’s stock.
A shareholder will have the right to have his/her vote registered in the corporation’s stock registry. In general, shareholders will choose the class of stock they want to own and will also be permitted to change this control via written or unwritten resolutions. A corporation may issue preferred stock dividend or stock dividends. A corporation does not need to issue preferred stock dividends if it is not going public under its initial public offering. A corporation may also issue common stock and non-common stock dividends.
Common stock is all the stock that is owned by shareholders in a corporation that is immediately accessible for sale to the general public. Ordinary day common stock will continue to be issued and traded until it becomes physically worthless (no longer equating to an asset). A company can sell or issue common stock without first giving its common stock shareholders an opportunity to exercise their voting rights. If a company does not make money from its shares, common stock may be sold to other investors. The proceeds of such sales, after allowable fees, become the owners’ equity.
Dividends, also referred to as income, are payments made out to stockholders for their ownership interest in a corporation. They are made on a regular basis, generally on the first or second business day of each calendar quarter. There is normally a date specified as the payment date for such dividends. Ordinary interest rates on dividends are computed by multiplying the outstanding capital stock by the average market price per share of each class of stock on the day of issue. Capital gain calculated on dividends is deducted from the net income of a corporation to show its net worth. All capital gain and dividends should be reported by the corporation’s shareholders as part of their annual return to the shareholders.
Stock Options is another two main types of stock investments. They differ from dividends because instead of being paid directly to the holder of the option, the buyer of an option purchases an option. This option then gives the holder the right, but not the obligation, to sell a specific stock at a pre-determined price within a set period of time. An option may either be exercised or be deemed never exercised if the price that the buyer chooses to buy the stock is higher than the strike price or call option was in place at the time of exercise.
A corporation’s stock certificate is a document that records the ownership of a particular piece of stock. Stock certificates were created to facilitate the exchange of stock between corporations. They list the names and addresses of the stockholders of each corporation and give the quantity, date of issue, and the value of each stock that are being traded. The stock certificate provides all the necessary information for determining the value of a stock and ascertaining whether a corporation will make a profit or incur losses. However, all stock certificates eventually become public information and are available for purchase by any interested stockholder.