By David Gass

Choosing a stock while taking an investment decision depends upon your financial goals. Corporations issue different types of stocks, the basic two types being common stock and preferred stock. Another type of classification which is commonly used is to classify stocks as growth, value or blue chip stocks, amongst others. It is important to understand the various terms clearly so that you can make a wise investment decision.

Common Stock

This is the basic stock issued by a corporation and represents the fraction of the company owned by you. Common stockholders bear the most risks associated with the company. Common stockholders get dividends only after preferred stockholders have got theirs. However, the investors holding common stocks have voting rights in the company, which enable them to influence corporate resolutions. Preferred stock holders do not have voting rights.

Preferred Stock

This is a form of equity, but has the characteristics of both bonds and common stock. As the name implies, preferred stock holders can claim the earnings and also the assets in the event of liquidation of the company, prior to common stock holders. However, the claims of preferred stock holders come after those of bondholders.

Additional Classifications

• Growth Stocks: Growth stocks are stocks of companies whose financial performance and earnings exceed the industry average and the economy in general. The profits are typically re-invested to expand the business and minimal dividends if any, are paid to stockholders. Stockholders gain because the share price goes up as the company grows.
• Value Stocks: These are stocks considered undervalued by investors. Typically, these may be stocks of companies going through a rough patch or whose growth potential has been underestimated by the market. These stocks attract those investors, who believe in long-term growth of the company. The second richest man in the world and great investor, Warren Buffet, has championed the art of value investing.
• Blue Chip Stocks: Blue Chip stocks are stocks of financially sound, well- established companies with managements having a well established track record of delivering earnings. Their stock price movements are less volatile and they pay regular dividends. Such companies have industry leadership.
• Defensive Stocks: These stocks provide stability in stock price during periods of recession, economic slowdowns or slow down in industries. Consumers continue to buy food, medicines, gas and electricity even during slowdowns and stocks of companies dealing with these sorts of goods do not lose much value during rough patches in the economy.
• Cyclical Stocks: Cyclical stocks are stocks of companies which perform along with business cycles. When the business cycle is in an upturn, the value of the stocks of companies related to the particular industry would appreciate rapidly, offering windfall gains. Commodities, airlines, durable goods manufacturers fall in this category. However, these stocks lose value during downturn in business cycles.
• Income Stocks: These are especially suited for investors looking for a greater proportion of current income of companies. Income stocks offer a higher dividend in relation to their market price. Blue-chip companies and utilities like banks fall in this category.
• Seasonal Stocks : Stocks of such companies fluctuate with seasons. Examples are stocks of retail companies, greeting card companies which have a greater proportion of sales during festive seasons.

Penny Stocks : These are low value stocks, typically with a value in the range of $1 to $5 per share and are traded Over-The-Counter (OTC). They are highly speculative and high risk investments.

By David Gass

Now that you have formed your corporation, protected your personal and family assets from the risk of doing business, it is time to issue your stock certificates.

While stock structure and issuing shares may seem very complicated at first, it is not. This useful information should help you make the process a real breeze. Stock structure is pretty flexible and can be amended as the needs of your company change.

No matter how large or small your business is, all corporations have stock; even those that are privately owned. A corporation is responsible for filing a notice of stock issuance, preparing stock certificates, and issuing stock certificates to its shareholders.

Stock represents ownership of the business.  For you or anyone else to have an ownership in a corporation, shares of stock must be issued. When you structure your corporation, you will designate the number of shares that you will want to issue. These shares will exist as soon as your corporation is filed with the secretary of state.

Your Articles of Incorporation will state how many shares the company is authorized to issue. Basically, all issued shares will represent ownership of the company. Usually, a corporation does not issue all of its shares at the start of business as it probably will wish to save some shares of stock in reserve to be issued at a later date to raise capital for the corporation.

  
Many small corporations have only one stockholder, the person who started and runs the business. Regularly, a founder’s spouse or children are stockholders.  A stock certificate is the physical evidence of ownership of shares in a corporation. It is also referred to as a share certificate.       

Subsequently issuing stock in a small corporation, you will be able to determine who will receive shares of stock, what percentage of the corporation each shareholder will own and how much shareholders will pay for each share of stock.

Other important stockholders can include investors, friends, business partners and employees.  Stockholders are also referred to as shareholders.  Basically, shareholders significance in the company is proportional to the amount of shares that they own.

So now that you understand the simple stock certificate facts, you are ready to run your business!