Stock is a security issued in the form of shares that represent ownership interests in a company. There is both common stock (often simply called "stock," "shares," or "equity") and preferred stock. Common stock holders elect the company's board of directors and actively participate in the company's success (or failure) through a rising (or falling) stock price. Common stock holders may also receive dividends, provided the company is profitable, obligations to commercial creditors and bondholders have been met, and the board sees fit to declare them. In the event of liquidation, however, common stock holders have no right to assets until all other obligations of the firm have been met. Common stock holders may have "pre-emptive" rights to maintain their percentage ownership of the firm. For example, a common stock holder with 100 of the 1,000 outstanding shares of the company, or 10%, may (or may not) have the right to buy 10 shares of a new issue of 100 shares. Preferred stock holders, in turn, are generally guaranteed dividends at a fixed rate, but they have limited voting rights.

Last updated on May 14, 2009 by Jack Parsons