Glossary - Stock
Stock represents ownership in a corporation, proportionate to the amount of shares held compared to the total shares issued by the entity. Owners of stock, known as shareholders, are entitled to a portion of the corporation's assets and earnings. Stocks are divided into two main types: common stock, which usually entitles the owner to vote at shareholders' meetings and to receive dividends, and preferred stock, which has priority over common stock in terms of dividend payments and assets in the event of liquidation but generally does not carry voting rights.
Also known as
- Shares
- Equity
Use cases examples
- Corporate Charter: The corporation is authorized to issue 100,000 shares of common stock.
- Stock Purchase Agreement: Pursuant to this agreement, the Investor agrees to purchase 5,000 shares of the Company's preferred stock.
Considerations for investors
- The rights attached to the shares, such as voting rights, dividends, and liquidation preference.
- The potential for dilution of ownership percentage through subsequent financing rounds or stock option grants.
Considerations for founders
- Understanding the difference between issuing common and preferred stock, and the impact on control and financial structure.
- Careful allocation of stock to founders, employees, and investors to avoid undue dilution.
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