LEARNING OBJECTIVES
- Understand the basic features of corporate stock.
- Be familiar with the basic terminology of corporate stock.
- Discuss preferred shares and the rights of preferred shareholders.
- Compare common stock with preferred stock.
- Describe treasury stock, and explain its function.
- Analyze whether debt or equity is a better financing option.
Stocks, or shares, represent an ownership interest in a corporation. Traditionally, stock was the original capital paid into a business by its founders. This stock was then divided into shares, or fractional ownership of the stock. In modern usage, the two terms are used interchangeably, as we will do here. Shares in closely held corporations are often identical: each share of stock in BCT Bookstore, Inc. carries with it the same right to vote, to receive dividends, and to receive a distribution of the net assets of the company upon liquidation. Many large corporations do not present so simple a picture. Large corporations may have many different types of stock: different classes of common stock, preferred stock, stock with par value and no-par stock, voting and nonvoting stock, outstanding stock, and treasury stock. To find out which types of stock a company has issued, look at the shareholders’ (or stockholders’) equity section of the company’s balance sheet.
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