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10 Cards in this Set

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What are the two main types of stocks?
Common Stock and Preferred Stock.
What are Common Stocks?
When people talk about stocks in general they are most likely referring to this type. In fact, the majority of stock issued is in this form.

Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.
Common Stock
Common Stocks are what type of investment?
Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders, and preferred shareholders are paid.
Time Frame & Risk
The Definition of a Stock?
Stock is a share in the ownership of a company.Whether you say shares, equity, or stock, it all means the same thing.
Ownership
What is Partnership?
A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
Partnership doesn't always mean two people. There are many large partnerships who have thousands of partners.
More than one owner.
What is a Corporation?
The most common form of business organization. The total worth of the organization is divided into shares of stock, each representing a unit of ownership. A corporation is ongoing and the owners face only limited liability.

All publicly-traded companies are considered corporations.
Form of Business.
Why does a company issue stock?
The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.
Raise Money
What is an IPO?
IPO is an acronym for Initial Public Offering. This is the first sale of stock by a company to the public. A company can raise money by issuing either debt (bonds) or equity. If the company has never issued equity to the public, it's known as an IPO.
First Sale
What is the distinction between a company financing through debt and financing through equity.
When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments. This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful.
Risk
What is Absolute Priority?
The bankruptcy principle that senior creditors have to be fully paid before junior creditors and stockholders receive any payment.

In other words, this specifies the pecking order. Shareholders are the last people to get paid if a company goes under. In contrast, senior creditors always get first grabs at the proceeds from liquidation.

This is also known at the liquidation preference.
This means that if a company goes bankrupt and liquidates, you, as a shareholder, don't get any money until the banks and bondholders have been paid out