The following is provided for informational purposes, and not meant to be legal advice. For the in-house attorney, it is helpful to have a fundamental knowledge of equity securities.
There are two types of stocks: common stock and preferred stock.
Common stock does not pay specified dividends, has a par value established at the time shares are issued for bookkeeping purposes, and may have preemptive Right, where in an issue of new stock, present shareholders have right to buy new shares before new issue offered to public.
Preemptive rights allow a shareholder to maintain a proportionate ownership in a company, preventing a decrease in ownership; receive one right for every share owned. Rights are freely transferable.
In a rights offering, the actual offering dictates the number of rights needed to purchase new shares, the subscription price, which is the purchase price (normally priced below the current market price), the expiration date, and the date the new stock will be issued.A common shareholder has voting rights. These rights give the shareholder the right to attend meetings, elect the board of directors.
Methods of voting include:
Proxy: Power of attorney is granted by a stockholder to someone else when it is inconvenient to attend a meeting. The other person votes the stock at his/her own discretion or as directed by stockholder.
Statutory voting: Shareholder allowed 1 vote for each share of stock owned to be voted for each director.
Cumulative voting: Shareholder multiplies number of shares by number of directors to be voted on. The shareholder can vote the total number of shares for any director.
The second type of stock is preferred stock. Preferred stockholders have preference over common stockholders with respect to dividends and liquidation of company.
In a company liquidation, the order of payment is usually first to bondholders then to preferred stockholders, then to common stockholders.
Preferred shareholders may have preferred dividends.
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