Extract
Stocks
Securities issued by a corporation are classified as debt, equity, or some hybrid of these two forms. Debt usually takes the form of a loan and must be repaid; equity usually takes the form of an ownership claim upon the corporation. The two main types of equity claims are common stock and preferred stock, although there are also related claims, such as rights, warrants, and convertible securities. Growing companies, which tend to lack the assets necessary to secure debt, often decide to issue equity securities. Although issuing common stock can be traumatic for a small business—because it can be costly, and because it causes a dramatic redistribution of ownership and control—it can also provide a solid foundation upon which to build a company. Preferred stock offers holders priority in receiving dividends and in claiming assets in the event of business liquidation, but it also lacks the voting rights afforded to common stockholders. Many venture capitalists require convertible preferred stock—which can be converted to common stock at some time in the future at a favorable price—as incentive to invest in start-up ventures.COMMON STOCKA share of common stock is quite literally a share in the business, a partial claim to ownership of the firm. Owning a share of c...See the full content of this document
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