Shares are fragments of the total value of a company. Each share represents a degree of ownership on a business by the holder. Stocks are a direct reflection of the performance or potential of a company, in other words its like a corporate report card graded by investors in the market from which it derives its value from. For businesses, it is one of the many ways they could raise cash without the burden of debt.
Types of stocks
Common stocks as the name implies are ordinary types of shares that is widely available. When talking about buying stocks of a company it is usually common stocks that are being traded. Each share of a common stock represents a single vote for matters concerning the company. In the event of company liquidation, common stock holders are at the end of the line to receive payments over preferred stock holders and creditors.
Preferred Stocks represents a higher degree of ownership over common share holders. Holders of preferred shares receive fixed dividends and are paid with assets before common stock holders in an event of a liquidation. Voting rights on this type of stock depends on the company if they would give the option to its holders, but once it does, preferred stocks have greater voting rights over common share holders. Companies have the option to redeem outstanding shares of its preferred stocks from its share holders at a higher price. Preferred shares can be converted to common shares.