We often hear the word stock. In merchandising, stock can mean the goods or merchandise kept on a warehouse that is available for sale or distribution. However, that isn’t the stock that we are about to discuss. The stocks we will tackle on this article is all about the stocks of a corporation. When you are planning to buy shares of stock or invest in the stock market, it is important that you first learn the basics of corporate stocks. So here are the following things you should know and understand about stocks of a corporation.
What are stocks?
Corporate stocks or capital stocks are shares of ownership in a stock corporation. When you own stocks in a corporation, you become a stockholder or shareholder of that company. In other words you become a part-owner of that corporation based on the number of the shares you own. Ownership of stocks is represented by a stock certificate.
What is a corporation?
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Corporations can be a stock corporation or a non-stock corporation. Non-stock corporations are considered non-for-profit corporations. Examples of a non-stock corporation are foundations and charitable institutions. It is in the stock corporation where stocks are transferable. Furthermore, it is in the publicly listed corporations or companies where stocks are traded (buy or sell) in the stock market. A company becomes publicly listed when its shares are traded in the Philippine Stock Exchange.
Who are stockholders or shareholders? Stockholders or shareholders are those who own shares of stock of a stock corporation or a publicly listed company, until the time that they decide to sell and transfer them to new owners. As owners, they participate in that company’s growth and future profits. On the contrary, they may also lose if the company suffers a loss or performs below market expectations.
What is the stock market? A stock market is a place where stocks are bought and sold. The Philippine stock market is the place where people can invest in “publicly listed” companies in the Philippines Stock Exchange (PSE).
What are the different types of stocks?
The usual types of stocks are common stock, preferred stock, cumulative preferred stock and convertible preferred stock. The difference depends on the right and privileges which you receive as a stockholder.
What are common stocks?
Common stocks or common shares usually have voting rights. Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company’s board of directors. They are usually purchased for participation in the profits and control of ownership and the management of the company. Common stock holders are entitled to an equal pro rata division of profits without preference or advantage over another stockholder. However, they have the last claim on dividends and are the last to collect in case of liquidation. The majority of securities traded in the Philippine stock exchange are common stocks. Common shares can be classified into class A and class B shares. Class A shares are reserved to Filipino investors, while Class B shares are open to foreign investors as well as Filipinos. Thus, Filipinos can own both classes while foreigners can only avail of Class B shares. Both classes have the same privileges and rights, and receive the same amount of dividends.
What are preferred stocks?
Preferred stocks are another type of securities issued by corporations. Its name is derived from the preference given to the holders of this stock over holders of common stocks. Holders of the preferred stocks are entitled to receive a fixed minimum amount of dividends (expressed either in pesos or as percentage of the stock’s par value), to the extent declared by the company’s Board and if there are sufficient retained earnings, before any dividends are paid to the holders of common stocks.
What are cumulative preferred stocks?
Cumulative preferred stocks are special preferred stocks that accumulate unpaid dividends for future payment. Cumulative preferred stock has prior rights to dividends over common stock; therefore the omitted cumulative preferred dividends must be paid before the common stock dividends can be paid.
What are convertible preferred stocks?
Convertible preferred stocks are preferred stocks which are exchangeable into common stocks at the option of the holder under specified terms and conditions. The conversion ratio specifies the number of shares the holder receives upon surrender while the conversion price is effective price paid for the common stock when conversion occurs.
Reference: Corporation Code of the Philippines / Philippine Stock Exchange