Types of Securities and your rights as a Shareholder

Securities issued by any company are classified in to three main classes: Bonds

, Preferred Stock and Common Stock. We can understand the priority of each type of stock by considering what happens when the company goes bankrupt. Usually when we talk of stock we talk about common stock only. As a common shareholder you receive the lowest priority when a company goes bankrupt. During insolvency proceedings, it is the creditors who first get dibs on the company's assets to settle their outstanding debts, then the bondholders get first crack at those leftovers, followed by preferred shareholders and finally the common shareholders. Now lets define Bond, Preferred Stock and Common Stock. Bond A bond is a debt investmentin which aninvestor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixedinterest rate. Bonds are used by companies, municipalities, states and foreign governments to finance a variety of projects and activities. Preferred Stock A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. The precise details as to the structure of preferred stock are specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares". Common Stock A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. In the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debt holders have been paid in full. Now lets discuss your rights as a common shareholder. Voting power This includes electing directors and proposals when fundamental changes like mergers and acquisitions or liquidation takes place. Voting takes place at companys annual meeting. Increased share value As common shareholders have claim on a portion of assets of the company and they are owners of that portion and as these assets generate profit they can reinvest in additional assets. Thus, getting returns in the form of increased share value. Right to transfer ownership Right to transfer ownership means that the shareholders can trade the stock on an exchange. Claim on dividends This means claim on profits a company pays. A company has two options with profits: either to reinvest back into the firm or pay out in the form of dividends. Although the percentage to be given is decided by the board of directors but as a common shareholder you are entitled to receive it. To conclude this I would like to say that shareholder privileges and rights vary from state to state and country to country, so it is important to check with your local authorities and public watchdogs. -- Aditya Todawal e-Marketing Executive http://www.capitalvia.com

Types of Securities and your rights as a Shareholder

By: Aditya

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