Common Stock Vs. Preferred Stock

COMMON STOCK vs. PREFERRED STOCK

Types of common stock

Authorized  Stock – is the total number of shares a corporation is allowed by the corporate charter to issue to shareholders.  It can’t be changed unless the charter is rewritten because an expansion, merger, or some other change of entity type.

Example

        SMS Corp is a Car manufacturer. SMS is a family company and has been in business for 30 years. The corporate charter authorized SMS to issue 50,000 shares, but there are only 30,000 shares currently issued to shareholders. SMS owns 15,000. His wife owns 10,000 and his two children both own 2,500 shares. This means that if the company wanted to take on more investors, it could issue another 30,000 shares of common stock.

        On the equity section of SMS balance sheet, the total number of outstanding (30,000) and authorized (50,000) shares would be listed for external users to evaluate.

Types of common stock

Issued Stock – The total number of a company’s share that have been sold and are held by shareholders. Issued stock can be held both by insiders and by the general public.

Treasury  Stock –  is stock repurchased by the issuer and intended for retirement or resale to the public.

Outstanding Stock - refers to all shares currently owned by stockholders, company officials, and investors in the public domain, but does not include shares repurchased by a company.

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