Common Stock
This appropriately named type of stock is what most people refer to when they are talking about stocks. The majority of shares that companies issue are that of common stock. These types of shares represent ownership in a company, and a claim to the profits that the company generates. Shareholders are entitled to one vote per share which allows them to elect board members, who watch over management.

In a well run company, over the long run, shares will appreciate which will provide shareholders with better returns than any other investment. Of course, that higher return comes from taking on higher risk. If the company liquidates due to bankruptcy, the common shareholders lay claim on the assets of the company once bondholders, creditors and preferred shareholders are paid.

Preferred shareholders? Are some shareholders more special than others?

Preferred Stock
This type of ownership does not come with the same voting rights as common shareholders (although some companies allow preferred shareholders a vote). Preferred shareholders also receive a fixed dividend forever, unlike common shareholders who's dividend is far from guaranteed. In the case of a bankruptcy, preferred shareholders receive payment before common shareholders. Bondholders get paid first however. A company can purchase the shares of a preferred shareholder anytime. Often, there is a premium offered to the shareholders.

In the simplest of terms, preferred shares are somewhere between bonds and common shares.

Classes of Stock

Lets go back to our example of you being the owner of a successful family business. You decide that in order for the company to grow, you need to either go into debt to finance the growth, or you can dip into the equity market and offer partial ownership to potential investors. However, you want to ensure that your family maintains full control of the company's future. What you can do is to set up different classes of shares, whereby one class of common shareholders would have 10 votes per share, while the other class would have only one vote, and the majority of shareholders would hold this class of shares.

For example, your family may own 100 shares of ABC Class A shares, where one 1 share equals 100 votes. The rest of the shares would be 1000 shares of ABC Class B shares where 1 share equals 1 vote. Even if someone owned all 1000 Class B shares, they would never be able to outvote the family.

There are often many reasons for setting up shares in this fashion.

The ticker symbols look like this: ABC.A, ABC.B, ABCa or ABCb.