Investments: Different Types Of Stock
There are also different classes of stock. The different classes of stock in one company are called Class A and Class B.
The first class, class A, gives the stock owner more votes per sharp of stock than the owners of a class B stock. The ability to create different classes of stock in a corporation has been in existence since 1987.
This is known as a class of shares, where stocks vary by levels of voting rights each shareholder receives. So, a publicly listed company might have two classes of shares or classes of stocks, designated as Class A and B. Whereas, owners of privately listed companies often create class A and B structures with different voting rights to maintain, gain control, or make the company a more difficult target for a takeover by investors with large financial backings.
Generally, the everyday investors avoid stocks that have more than one class. Stocks that have more than one class are not what we call common stock.
Perhaps the more upscale type of stock is called Preferred Stock. Many investors are confused by this and stay away, because, preferred stock isn’t just a stock. Preferred stocks are a combination of stocks and bonds; where owners of preferred stock can lay claim to the assets of the company in case of bankruptcy, and these stockholders get the proceeds of the company’s profits before the common stockholders.
Preferred stocks sound too good to be true, right? Before you decide on preferred stocks, be aware that the company has the right to buy the stock back from the owner and stop paying dividends. To best utilize preferred stocks, a different investment strategy must be in place.
It is unwise to use the same investment strategy in preferred stock and common stock.