What is the difference between stock, common stock, preferred stock, options, units and membership interests?

Stock

Stock is an ownership interest in a corporation. A share of stock represents a fractional ownership interest of the corporation in proportion to the total number of shares outstanding.  Stock may be classified as either common stock or preferred stock.

Common Stock

Common stock typically entitles the holder to vote for the corporation’s directors, approve significant events such as a merger or dissolution and gives the holder the right to receive dividends if and when they are declared.

Preferred Stock

Preferred stock typically has enhanced rights as compared to common stock.  This may include special voting rights, the right to receive dividends prior to the holders of common stock and the right to receive priority in distributions over that of the common stock upon the occurrence of significant events such as sale of the corporation or liquidation.

Stock Options

Stock options are rights to purchase shares of stock of a corporation at a future date at a specified price.

Units and Membership Interests

Ownership interests in a limited liability company, commonly referred to as an LLC, may be expressed as percentage interest or in amounts of membership units that are held by a member, and treated similarly to shares of stock in a corporation.  The Operating Agreement that members of the LLC enter into when they acquire the Units or Membership Interests provides the framework for the rights of the Units or Membership Interests with regards to voting and preference upon the occurrence of significant events.

This article is for informational purposes only and should not be taken as legal advice. It may not reflect the current law or the law in your jurisdiction. When acting upon the information presented herein, seek advice of counsel in the relevant jurisdiction.

Published by Catherine Edmunds

Business attorney, specializing in corporate and securities matters.

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