What is a Stock?

Stock represents ownership in a company. When you buy stock, you buy shares in a company. And you’re therefore entitled to a share of the economic benefits the company generates—primarily the company earnings and any dividends that company management decides to pay out to shareholders. The stock in a company is often referred to as equity, and the general category of stocks is called equities.

There are two main types of stock: common and preferred. The difference between the two can be summed up as follows:

1. Common stock:
Typically, holders of common stock are entitled to vote at shareholders' meetings and to receive dividends.


2. Preferred stock:
Preferred stock holders usually do not have voting rights, but they do generally have a higher claim on assets and earnings than the holders of common shares. This means that they may be paid dividends before common shareholders are and have priority in the event that a company goes bankrupt.