bankruptcy<\/strong><\/span><\/a>). The key is good corporate performance to continue operations and meet the minimum requirements of the bonds or notes.\u00a0<\/span><\/p>\nIn addition to bonds or notes, sometimes corporations sell other forms of stock with a greater right to the financial rewards over the common shareholder. These higher forms of stock rights have various names and rights.\u00a0 The following are some examples:<\/span><\/p>\nPreferred Stock<\/strong> \u2013 a certificate with a preferred right to financial reward over common stock but has no voting rights.<\/span><\/p>\nClasses of Stock<\/strong> \u2013 sometimes corporations reorganize the stock into groups giving one class of stock more rights or more financial reward with less risk over the common stock. A company can issue something like \u2018Class A\u2019 stock with a greater right over common stock. This class of stock may be entitled to electing one or more of the Board of Directors giving them greater say in the operations of the company. In addition, they may receive preference over common stock shareholders in case of liquidation or financial distributions.<\/span><\/p>\nConvertible Stock<\/strong> \u2013 a security providing the right of the owner to convert from a reclusive position (no say and no financial reward) to a common stock or preferred stock position contingent upon certain goals achieved with the corporation. There may be a conversion if the company fails to meet certain goals too. This is a complex type of security and so its rights and privileges can be easily misunderstood. It is best to be a sophisticated investor if looking into buying this type of security.<\/span><\/p>\nSuffice it to say, the common shareholder has the greatest potential for reward if the company does well, however, if the company performs poorly or the economy affects the value of the assets of the company, the common stock holder will most likely lose the entire investment. The simplest way to state this is the common shareholder gets paid last.<\/span><\/p>\nMethods of Transfer<\/span><\/h2>\nThe common lay person often thinks of stock transfer as an image of the New York Stock Exchange floor where millions of shares of various corporations are bought and sold each day. This is referred to as the secondary market. The primary market is called the Initial Public Offering or IPO.<\/span><\/p>\nIn the small business world, corporate stock is most commonly exchanged via the death of the holder of the certificate. When someone invests in a small business, they are usually the initial founder or company director of origin. Because the small business world is mostly family held operations, death is the trigger for transfer of the stock. The heirs receive the stock and they now own the business.\u00a0<\/span><\/p>\nIn some stock sells, the company sells certificates to family and friends or business associates. It is rare to go beyond the family boundaries as there are possibilities of accusations of deception or improper conduct. I don\u2019t recommend this course of raising money for your company. Stay within the family environment. If you do go beyond the family circle, use contracts, agreement forms, letters of understanding and even security offering documentation to properly present the financial position, pro forma, and rights of the common stock to your company. Use must use discretion and seek legal counsel to sell stock to someone you do not know.\u00a0<\/span><\/p>\nBut in some cases, the company does grow and prosper. Using good financial advice and working with investment groups, a small business begins to diversify the ownership with others. In these situations, the corporation submits a request to the state to expand the number of shares authorized. Others begin to get involved. If the company goes beyond the boundaries of the state, it then must comply with the Securities and Exchange Commission requirements to sell shares of stock.\u00a0<\/span><\/p>\nOnce the company has achieved certain levels of financial success, the shareholders may decide to take the company public. This is a significant milestone in the company\u2019s growth as there a new regulations and compliance requirements to go public. But if the company truly desires to expand, going through the steps of an Initial Public Offering (IPO) may be financially beneficial. More potential buyers are available and there are greater opportunities for all parties involved. This is a rare step for most businesses as only those that desire to expand beyond the scope of a family or small regional company are capable of achieving this level of ability to trade stock.<\/span><\/p>\nSummary – Common Stock<\/span><\/h2>\nCommon stock is a certificate providing the holder certain legal rights and financial rewards. Legally, the holder has the right to vote and participate to a certain extent in the election of the directors of the company. Financially, the holder can earn the greatest financial returns over other security holders but is also the last to get paid as creditors are paid first.<\/span><\/p>\nIn the small business world, stock is rarely traded as there is a limited market and in addition most family owned operations desire to keep the business within the family. A company may seek out more sophisticated investors but must comply with many federal and state rules and regulations. It is rare for a company to reach the level of an Initial Public Offering (IPO). <\/span>Act on Knowledge<\/b>.<\/span><\/p>\n