Glossary Terms

stock

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Stock represents an ownership unit in a corporation—each unit is a “share” of stock—conferring certain rights and responsibilities on the holder.

Common Stock – The most basic type of stock is referred to as common stock. Companies will sometimes create different classes of common stock—such as Class A common stock, Class B common stock, and so on—having different rights and responsibilities.

Preferred Stock – A company can also create one or more classes of preferred stock, which typically has rights that are superior to those available to holders of common stock.

Rights of Stockholders – The rights and responsibilities afforded different classes of stock are established in the company’s Certificate of Incorporation or Articles of Incorporation.

Stock rights can be divided into two major categories: control rights and financial rights.

Control rights include the right to vote in the election of directors to the company board and the right to vote on significant matters before the company. Stockholders also have the right to receive certain information from the company, though this right, like others, may be expanded or contracted by a shareholders’ agreement.

Financial rights include the right to receive dividends (if declared and issued) and the right to transfer or sell the stock, though stock in private companies typically carries significant restrictions on transfer and sale.