A share represents ownership in a company. Companies can issue different types of shares, each with unique characteristics regarding voting rights, dividends, and other factors. Shareholders typically have the right to vote on significant corporate decisions, such as electing the board of directors. Common stock usually grants voting rights, whereas preferred stock often does not. The specific terms and differences of share classes can vary significantly from company to company. Therefore, it is crucial for investors to thoroughly understand the characteristics of the shares they are purchasing.
Common stock, also known as ordinary shares, generally provides voting rights.
May offer dividends, though not guaranteed.
Can be subdivided into different classes with distinct voting rights and economic interests. For instance, Alphabet’s IPO in 2004 included Class B shares with 10 votes per share, compared to one vote per share for Class A common stock.
Often pays a fixed dividend.
Ranks ahead of common stock but behind corporate debt in liquidation or bankruptcy.
Usually lacks voting rights.
Used by founders to maintain control without a proportional economic interest.
Disproportionate voting power relative to economic interest.
Generally have more voting power and higher priority for dividends.
Common shares with no preferential treatment.
Can refer to shares given to employees or alternate share classes available to public investors, with varying restrictions and voting rights.
While differentiated voting rights or dividends based on the duration of ownership might seem like a way to encourage long-term investment, research suggests these measures often serve as control mechanisms. They can entrench a core group of shareholders, potentially to the detriment of minority shareholders.