Once you decide to start investing in the stock market, you will encounter the terms common stock, preferred stock, type A and type B.
What distinguishes one type of stock from the others is how big the risk is taken by shareholders, and their voting rights at general meetings of shareholders.
Common stocks or ordinary shares are shares issued by companies that will give the owners voting rights in shareholders general meeting to select board of directors and oversee the company policy. However, ordinary shareholders bear the highest risk because if the company went bankrupt and liquidated, first company will pay its creditors such as banks etc who have given loans. After that the company will pay the holders of preferred stock and the last come the common stock holders if the company still has remaining assets. But most investors who invest in the stock market will take this risk because the common stock will provide capital gain if the company has a good performance.
Now if we compare with the common stock, preferred stock owners have the advantage in having a claim on income and assets before common stock holders, and in case of company liquidation, will be paid after all creditors have been paid. Preferred shareholders generally have no voting rights but they are entitled to some fixed dividend paid to them.
You will also find the classification of shares, known by the shares of type A and type B. Type A shares will usually have ten or five voting rights per share and Series B Shares shall have one vote per share. Classification of shares as a type A or type B can be exactly the opposite for some companies because the companies try to disguise the voting power of particular shares type. The need for classification occurs because companies try to give more voting rights to investors from certain sectors.
Be sure to read the company profile, rules and the prospectus before investing. A cautious investor could possibly make more profit than an ordinary investor.
