Stock Types

A stock can be defined as a unit of ownership of a company. However, the ownership rights that are conferred on the investor by virtue of the stock holding will vary in accordance with the type of stock he holds. 

Preferred stock is also called preference shares.  It is a stock type holding that does not carry voting rights. However, holders of this type of stock are entitled to a dividend that must be paid out before any payments are made to common stock holders.  If the rules of the stock issue permit, preferred stock can sometimes be converted into common stock. The terms and conditions for issue of preferred stock are detailed in the "Certificate of Designation".

Common stock is stock that carries voting rights, which can be exercised when corporate decisions are taken.  Some types of common stocks may not carry voting rights but may have some special rights attached to them and may be issued only to specific parties.  Stock holders will be entitled to a dividend (if declared) after the preference stock holders have been paid their share of dividend.

Shareholders may like to register their ownership with the company. When a share is registered with the company the company enters the name and address of the shareholder in its register of shareholders.  If the owner sells the share to another person, the new owner will have to register the shares in his or her name giving his name and address details to the company and requesting for a registration. 

The process of registration is not compulsory. Often shares are traded without registering the ownership with the company. The reasons for this are many.  The person buying the share from the original owner, may not have the intention of holding on to the shares for a long period of time.  He would prefer to sell the shares to another person as soon as market conditions are favorable.  So the shares may pass from person to person and registration may happen only when a person wants to register the shares in his name and hold it.

Warrants are guarantees that the holder can buy the company's common stock within a specified time frame in the future at a predetermined price.   Warrants may be sold directly by the company or may be integrated into a preference share offering.  They may also be allotted to common stock holders in proportion to their current holdings.  When shareholders subscribe to the warrants, the capital of the company increases but the rights of the shareholder are not affected in any manner.  If the subscriber chooses to pass on the right to the warrants to others, he is often free to do so.  The value of a warrant is the market price of the stock less the strike price (predetermined price).