What Are the Classifications of Stock Shares in a Publicly Held Corporation?

Not all company stock is created equal.stock image by Michael Shake from Fotolia.com

When you buy a share of stock in a publicly held corporation, you are buying a piece of the company. It's often a small piece. For example, in 2009, Exxon Mobil had nearly 5 billion shares outstanding. Your share entitles you to a slice of the company's earnings and a small say in how the company is run. The extent of each, however, depends on the classification of the stock.

Common

The majority of company stock is called "common stock." When you see references in the news to a company's "stock price," it invariably means the price of one share of common stock. As a common stockholder, you have a right to claim your share of the company's earnings every year. That profit comes as a dividend, which will be proportional to your stake in the company. If there is no profit in a given year, or the board of directors simply decides not to issue a dividend, then you get nothing. Common stockholders vote for the company's board of directors. You get one vote for each share you own. That's the extent of your ability to dictate company policy.

As a holder of "preferred stock," you are first in line when it comes time to distribute the company's profits. Unlike common stock, which may not produce a dividend, preferred stock comes with a guaranteed dividend the company must pay regardless of its profitability. Even if the company doesn't have the cash to pay your preferred dividend on the due date, it's still on the hook for the money. All preferred dividends must be paid before any common dividends. However, according to the Forbes Investopedia, in most cases, preferred stock does not carry the same voting rights as common stock.

In the event the company goes bankrupt and has to liquidate, which means to sell everything, preferred stockholders are in line for their share of the assets ahead of common stockholders, though behind the company's creditors. If there's anything left after the creditors get paid, you get first crack at it. Common stockholders will be lucky to see anything.

Common and preferred are the usual stock classifications, but companies are free to set up their shares however they see fit. The most common alternative system, according to Forbes, gives different voting weight to different types of stock. For example, one share of a company's regular stock might entitle you to one vote for the board of directors, while a share of "special voting" stock entitles you to 20 votes. This is how the Ford family has maintained control over Ford Motor. Family members do not hold a majority of Ford stock, but they're able to control the shareholder vote through a special class of stock.