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Investment Products > Equities |
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An instrument that signifies an ownership position, or equity, in a corporation,
and represents a claim on its proportionate share in the corporation's and
profits. A person holding such an ownership in the company does not enjoy the
highest claim on the companies. Instead, an equity holder's claim is
subordinated to creditor's claims, and the equity holder will only enjoy
distributions from any earnings after these higher priority claims are
satisfied. Also called equities, equity securities, or corporate stock.
Note that equities are classified in several different Asset Classes.
Common Stock
Securities representing equity ownership in a corporation, providing voting
rights, and entitling the holder to a share of the company's success through
dividends and/or capital appreciation. In the event of liquidation, common
stockholders have rights to a company's assets only after bondholders, other
debt holders, and preferred stockholders have been satisfied. Typically, common
stockholders receive one vote per share to elect the company’s board of
directors (although the number of votes is not always directly proportional to
the number of shares owned). The board of directors is the group of individuals
that represents the owners of the corporation and oversees major decisions for
the company. Common shareholders also receive voting rights regarding other
company matters such as stock splits and company objectives. In addition to
voting rights, common shareholders sometimes enjoy what are called "preemptive
rights". Preemptive rights allow common shareholders to maintain their
proportional ownership in the company in the event that the company issues
another offering of stock. This means that common shareholders with preemptive
rights have the right but not the obligation to purchase as many new shares of
the stock as it would take to maintain their proportional ownership in the
company.
Also called
junior equity.
Preferred Stock
Capital stock which provides a specific dividend that is paid before any
dividends are paid to common stock holders, and which takes precedence over
common stock regarding the distribution of any assets in the event of a
liquidation. Like common stock, preferred stocks represent partial ownership in
a company, although preferred stock shareholders do not enjoy any of the voting
rights of common stockholders. Also unlike common stock, a preferred stock often
pays a fixed dividend that does not fluctuate, although the company does not
have to pay this dividend if it lacks the financial ability to do so. The main
benefit to owning preferred stock is that the investor has a greater claim on
the company’s assets than common stockholders. Preferred shareholders always
receive their dividends first and, in the event the company goes bankrupt,
preferred shareholders are paid off before common stockholders. In general,
there are four different types of preferred stock: cumulative preferred,
non-cumulative, participating, and convertible.
Also called preference shares.
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Advisory Services, Asset Management and Securities Offered Through LPL Financial, member FINRA/SIPC
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