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Simple English definitions for legal terms
class of stock
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A quick definition of class of stock:
A class of stock is a type of corporate shares that a company issues when they have more than one type of stock. There are different types of class of stock, such as preferred stock and common stock. Common stock allows the holder to vote on corporate matters, receive dividends after other claims and dividends have been paid, and share in assets upon liquidation. Preferred stock gives its holder a preferential claim to dividends and to corporate assets upon liquidation but usually carries no voting rights.A more thorough explanation:
Class of stock refers to a category of corporate shares that are issued when a company has more than one type of stock. There are two main types of stock: preferred stock and common stock. Preferred stockholders have priority over common stockholders when it comes to receiving dividends and assets during liquidation. Common stockholders have voting rights and can participate in the company's management.
For example, a company may issue Class A and Class B shares of stock. Class A shares may have more voting rights than Class B shares, but Class B shares may have priority when it comes to receiving dividends.
Another example is cumulative preferred stock, which guarantees that the holder will receive all missed dividends before common stockholders receive any dividends.
Understanding the different classes of stock is important for investors because it can affect their rights and potential returns.