11 - Corporation Stocks

Abstract

This chapter discusses the various types of corporation stocks. Some corporations issue a single class of stock—called common stock. Other corporations issue two classes: (1) common and (2) preferred. The preferred stock has a number of advantages when compared to the common stock: it comes first in distributions of profit, it is even guaranteed a profit distribution in certain instances, and it is redeemed first if the corporation is dissolved. The holders of common stock have the voting power. The charter specifies the maximum, or authorized, number of shares that a corporation can sell. As a share is sold, it is said to be issued. Stock is either par or no-par. The preferred stock is guaranteed a distribution of profits. If a year passes in which the board of directors decides not to distribute any profits, the cumulative preferred stock has the right to the unpaid past dividends in the next year. The noncumulative preferred stock does not have this right, and the common stock never has the cumulative right. Corporation profits distributed to stockholders are known as dividends. To compute the dividends earned by a class or a share of stock, it is necessary to know what kinds of stock have been issued, with what rights, and in what amounts.