Types of stock

Stock can have different voting or profit characteristics. There are two main types: preference shares (US: preferred shares) and ordinary shares (US: common shares).

Ordinary stock is quite common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. Ordinary shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than ordinary stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the ordinary shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

Explaining confusing terminology

The term legal person contrasts with natural person. A natural person is a real human being. A legal person is not a human being, but a company; however, it shares several legal characteristics with natural persons (especially the ability to sue and be sued). This relates to the term personality from the text: the treatment of a business entity as a legal person. A company has personality; a partnership doesn't.

The number of shareholders (= joint owners of the company) can vary enormously. Private limited companies typically have a small number of shareholders, who typically have a long-term personal relationship with the company. In publicly traded companies, there can be thousands of shareholders, including many who own only a tiny fraction of the company, and who may see their relationship with the company only in terms of how much money they can get by keeping or selling their shares.

A company's creditors typically include lenders such as banks and other financial institutions, as well as suppliers who deliver first and receive payment later.

The terms corporate personality and business vehicle should not be confused. Corporate personality refers to the existence of a company as a legal person. Business vehicle refers to the types of business entity (e.g. sole proprietorship, company, partnership).

A stakeholder is someone with a direct interest, investment or involvement in a business, such as a shareholder, employee, supplier or customer. A non­affiliated stakeholder is not directly controlled by nor joined to the business in question, so is limited to customers, suppliers and other independent people affected by the activities of the business, such as neighbours.

The terms shareholder and stockholder are the same, and can be used interchangeably. Both refer to people or institutions which own (hold) shares (pieces) of a company's stock (ownership).

An officer is a senior official in a company, who is hired by the directors, and who is authorised to make contracts on behalf of the company. Examples include the Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

A pass-through entity is a US business, such as a sole proprietorship, partnership or limited liability company (LLC), which pays no tax itself, but rather the owners pay tax on the company's profits as part of their personal tax.

A company's assets are everything it owns. Its licences are formal rights to use somebody else's property, including intellectual property. Its permits are licences issued by government bodies, allowing the company to do something (such as produce a dangerous product in a particular location).

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