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Basic Classes of Corporate Shares

            When you’re a corporate shareholder, it's important to fully understand all of your rights and obligations. Once you purchase shares in a corporation, you need to learn what personal rights you’ve obtained. Generally speaking, there are three classes of stock shares - common, preferred, and derivatives.

Common Stock

            Once you own these types of shares, you're entitled to specific voting rights that allow you to elect the board of directors and indicate your preferences regarding various corporate policies or decisions.

            As the name implies, “common” stocks are not the most desirable ones since other types of stocks can confer greater privileges. For example, should the corporation ever be ordered to liquidate all of its assets, preferred stockholders and others owed money by the corporation will be paid their funds owed before what's left is divided up between those only holding “common” stock. Be aware that some corporations may choose to issue more than one common stock class.

Preferred Stock

            The dividends owed to these shareholders, as briefly noted above, must be paid before those holding only common stocks. In addition to providing fixed dividends, preferred stock is often more likely to appreciate in value. However, certain voting rights must sometimes be forfeited in order to gain greater stock appreciation.

            Under certain situations, holders of preferred stock are sometimes allowed to convert their shares to common stock.

Derivatives

            These types of shares in corporate stock or other goods “are financial instruments whose price is dependent on the value of some underlying asset or indicator. A stock option is a particular kind of derivative that allows the holder to buy or sell stock “at a set price -- called the strike price -- at a future date . . .”

            The term “derivative” is used to indicate that this type of contract is dependent on another item’s potentially fluctuating value.

            There are two types of stock options – those referred to as “call” options and “put” options. “Call” options give you the right to buy stock at the strike price [while] “put’ options give you the right to sell stock at the strike price. Both of these types of options are traded on options exchanges.

            As for distinguishing between stock options and derivatives, “a stock option is a particular kind of derivative, one that allows the holder to buy or sell stock. All stock options are derivatives but not all derivatives are stock options.”

 

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
Advocate for the Seriously Injured in Georgia