What it is:
How it works/Example:
equities, represent ownership interests in corporations. If you own one, 100, or 100 million of in a company, you're an owner of the company.
Corporations sell , or ownership in the company, in return for to run their businesses. There are a number of different kinds of , and their classifications largely depend on the rights they confer on the holder. Investors evaluate these categories based on their objectives, and they look for that meet those objectives. The two most popular categories of are common stock and preferred stock.
The most prominent characteristics of are that they entitle the shareholder to vote on corporate matters (typically, the shareholder gets one vote for every share he or she owns, though that is not always the case) such as whether the company should acquire another company, who the board members should be, and other big decisions. Common stock also often comes with pre-emptive rights, which means the shareholder has a "right of first refusal," or first dibs on buying any new the company tries to .
Perhaps the most important attribute of common stock is that their holders are the last in line when it comes to getting their back. If the company goes bankrupt and has to sell off all its assets, the cash from the first goes to pay off lenders, employees, and lawyers. The shareholders get whatever is left (which is usually nothing, or just a few pennies for every dollar they originally invested).
This pecking order is why preferred stock, the other popular category of , exists. Although aren't usually voting shares, they usually receive a steady and their claim to the company's assets "outrank" the common stockholders' claims (i.e., in the event of bankruptcy, the company must pay off lenders, preferred shareholders, employees, and lawyers before the common shareholders get anything).
Why it matters:
Voting shares carry aof power, and they represent the inherent communal nature of the ownership of corporations. Plenty of companies also nonvoting shares so that the voting shares can be retained by the founding family, for example, or the original investors, and these actions only emphasize the power inherent in voting shares. Without shareholders voting in approval, corporations often can't do things such as re-elect directors or merge with another company, for example. Accordingly, investors must consider the voting rights attached to any and decide whether those rights are important.