Definition of stocks and types

Stock definition
Shares are a stake in the company that is individually or collectively owned, and the shares constitute a percentage of the company's capital, which is also defined as a type of securities issued by governments or companies, based on a fixed interest rate. Another definition of a stock is that they are securities of equal value, used in trading, either directly or through the financial markets, and each share is considered a right of ownership that guarantees the owner a specified share of the business's capital.

Stock types
Stocks are divided into tradable types on the stock markets, and the following are information:

Common Stock
It is the most issued and traded stock in the financial market, representing private ownership of companies and a percentage of their financial profits. Each ordinary equity investor is entitled to participate in the election of the Company's Board of Directors, receiving one vote for each share he or she owns in the company.

Long-term ordinary equities contribute to the development of capital by increasing the percentage of financial returns in all investments within the company, and the value of returns is often higher than the cost of the shares, but this entails some risk, especially if the company goes bankrupt and becomes viable. For liquidity, shareholders will only receive the value of their share of the capital after the debt is paid with the outstanding sands and shares of the owners.

Preferred Stock
They are shares that constitute a percentage of the company's ownership, but they do not grant the right to vote to shareholders, and premium shares are considered with guaranteed and fixed profits, unlike ordinary shares with variable profits, and when the company is liquidated the shareholder gets its share of the premium shares before the other shareholders, Some investors view these shares as capital-based capital.

Stocks that are distinguished from ordinary shares are distributed in a variety of types:

  • Direct (non-cumulative) shares: a type of premium stock but it does not have any additional advantages, the shareholder is entitled to the value of the declared returns, and if the company is unable to pay dividends, there are no benefits to the investor.
  • Cumulative shares: Shares that protect shareholders in the event of financial difficulties or non-payment of dividends, as the value of the shares accumulates on the company until it is able to pay them.
  • Shares: They give their owners the right to receive the dividends of the declared dividends and the additional dividends shared.
  • Transferable shares: Shares that offer the advantage of swapping shares with ordinary shares at a fixed price called a conversion price.
  • Recall shares: Shares that are beneficial to the company and not the shareholder, as the company in this type of stock is entitled to be redeemed at the expiry of its validity.

Issue of shares
Issuing shares from private positions in participating companies during their founding, which helps individual shareholders participate in the capital of the establishment, or to increase the company's capital when needed in the future, and there are many reasons associated with the issuance of shares, the most important of which are:

  • Increase the company's private financial liquidity in order to cope with financial crises or losses.
  • Financing new projects to develop businesses.
  • Participation in the capital of competing companies for strategic or investment reasons.

Shareholders' rights
Shareholders, i.e. shareholders in the company, enjoy a range of rights included in accordance with the law, including:

  • Get a share of the company's liquidation value, whether it is resolved or expires.
  • Co-management of the company and the general and extraordinary meetings of shareholders.
  • The right to participate in board elections by running or voting.
  • A share of the profits distributed during the year, determined by the General Shareholders' Association, will be distributed according to the share of each shareholder.
  • The right to access all important documents and information in order to follow up on the company's business and activities.

Stock properties
Each type of stock has certain characteristics:

  • Characteristics of Common Stock:they are special features in this type of stock, divided into the following:
    • The remaining claim: Ordinary shareholders will receive their rights to the company's income and assets at the end of the liquidation process.
    • Limited liability: Most shareholders may lose the value of their investment stake when a company is unable to invest properly, and if it goes bankrupt, all shareholders may lose their shares within the company, leading to their loss.
  • characteristics of Preferred Stock:are special features in these shares, divided into the following:
    • Dividends are distributed in the same way as ordinary dividends.
    • The shares are similar to the ones that are good, as they pay dividends to shareholders based on a prior agreement, distributed over regular periods of time.
    • Some companies pay premium stock issue rates before maturity.
    • Excellent shares do not grant the right to vote to corporate shareholders.