If an individual owns stock, they have a share of ownership in a company. They are also entitled to a share of the company’s assets or earnings. The more stock an individual owns, the more assets or earnings they are entitled.
There are two different kinds of stock, common and preferred. Common stock is, as the name suggests, the most common type of stock. When stock is discussed, it is generally common stock. This type of stock is considered the most risky of investments. It is considered more risky than preferred stock.
Preferred stock is similar to common stock in that it gives the stockholder ownership in a company. However, it does not typically come with the same voting rights.
One major difference between preferred and common stock is that common stock has variable returns while preferred stock has a guaranteed, fixed dividend. A preferred shareholder will receive payment before a common shareholder in the event of a company liquidation. The stock is also callable, meaning it may be repurchased by the company at any time and for any reason.
The majority of companies will divide their stock into different classes. These classes are designated by letters. This is done in order to keep voting rights isolated to a particular group.
Stock prices may change based on the economic concept of supply and demand. The more stock that is purchased, the higher the stock price increases. The inverse is also true. The less the stock is purchased, the more the price will decrease. The demand for a stock is usually affected by what investors believe the company is worth.
A stock is a type of security. Securities also include bonds, debentures, and other interests that involve an investment with a return primarily or exclusively dependent on the efforts of an individual other than the investor.
Securities laws, or stock laws are the federal laws and regulations that govern the purchase, sale, and creation of a security interest. These laws derive from the concept that all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to purchase.
Securities laws are enforced in the United States by the Securities and Exchange Commission (SEC). The SEC is charged with protecting investors and maintaining the integrity of the securities markets by requiring public companies to disclose meaningful financial or other information to the public so their securities investments can be evaluated.
What is the Difference Between Stock and Equity?
There is not a difference between stock and equity. The terms stock, equity, or shares all refer to ownership in a company. Equity refers to ownership of assets after debt is paid. Stock refers to traded equity. Stock is a type of equity that represents an equity investment.
What Rights Does Stock Confer in a Holder?
Owning a stock confers many rights to the owner, or stockholder. A stockholder, or shareholder, has the right to a share of the company’s earnings. They also have voting rights which may be used to vote on certain corporate decisions, such as the election of the board of directors.
This may sound like a large amount of power, but that depends on how many shares the stockholder owns. In general, unless they are an institutional investor, an individual really does not have much of a say in the day-to-day operations of the company. The extent of their control is usually limited to election or removal of directors on the board.
Am I Responsible for Errors the Company Makes?
One of the great aspects of stock is that it has limited liability. If the company experiences a financial hardship and creditors are involved, the most a stockholder may lose is their investment in the stock.
While personal assets of the major investors or members of the company may be seized by creditors, an individual stockholder’s assets are untouchable.
What Are the Benefits to Investing in Stock Rather than Bonds?
Bonds are debt security items, similar to IOUs. When an investor lends money to a company, the company issues a bond to the investor. The bond includes repayment terms, which may require the issuer to regularly pay interest on the bond to the investor or pay off the debt by a specific date. Bonds may be a good retirement investment or short-term investment.
There are several different kinds of bonds. There are some bonds that fall under more than one bond classification. Common types bonds may include:
- War Bonds;
- Municipal Bonds;
- Retail Bonds;
- Government Bonds;
- Build America Bonds; and
- Junk Bonds.
Although bonds may be a safer investment, especially for a long-term investor, stocks may yield greater returns. It is important to remember, however, that with greater return comes greater risk. Stocks are historically the more favorable investment because of their greater returns, but that greater return is not guaranteed.
What Does a Stock Lawyer Do?
An attorney for stock disputes assists their clients with any investment dispute related issues. An investment dispute is a disagreement over financial investments including:
- Trusts; or
- Corporate assets.
Because the majority of investments are secured through the use of a contract, many investment disputes arise over a breach of the contract terms. For example, there may be a dispute over the price of an investment.
Common types of investment disputes that are directly related to the investment may involve:
- The issuance of stock. A stockholder may have an issue with the way company stocks are distributed, pricing, or delivery;
- Being able to access funds;
- Disclosure of information. In some cases, investment information may not have been fully disclosed. This may lead to fraud or misrepresentation; or
- Foreign investment disputes. Foreign investments may be complex due to the interaction of domestic and international laws.
The laws that govern investment practices may vary by state, and according to the type of investment involved. Generally, an investment dispute is handled in civil courts, though some investment violations may involve a criminal matter as well.
In many cases, a civil lawsuit may be filed to resolve the investment dispute. This type of lawsuit usually results in a monetary damages award to reimburse the non-breaching party for their losses. Punitive damages are not permitted except in cases involving gross recklessness or willful violations.
Many disputes regarding investment issues are resolved through alternative dispute resolution methods including arbitration. Arbitration involves a neutral third party that hears the arguments of both sides of the dispute and makes a binding decision. Many investment contracts include an arbitration clause, which requires the parties to forgo their right to sue in the event of a dispute.
Do I Need a Lawyer Experienced in Investments?
Yes, it is essential to have the help of an experienced financial lawyer with any investment issues. Consulting with an attorney for the majority of investment decisions is probably not necessary. However, you have a dispute with your broker, you should consult with an attorney immediately.
This can include losing a significant part of your investment based on your broker’s bad advice. An experienced financial lawyer will review your case, explain your rights, and preserve any remedies that may be available to you.