Once you have decided to invest in the stock market then you start hearing the terms common stock, preferred stock, type A and type B.

The class of shares in fact tells you how much and what kind of voting right do you have and that in turn will determine the way you will be able have your opinion heard at the annual general meeting of the board.

Let us first discuss common stock, common stock is the common stock of share issued by the company and these common shareholders holding common shares elect a board of directors which in turn oversees the corporate policy. However common stock holders carry the maximum amount of risk because let us say if the company goes into liquidation then the company will first pay the debtors such as banks etc from whom they have taken loans and then they pay preferred stock holders and the last come the common stock holders which in all reality cannot ask for their share in the liquidation till everybody else is paid off.

However most investors who invest in the stock market will like to take risk anyway because the risk has its own rewards as the common shares will typically appreciate in value if the company is doing well.

The preferred stock is less risky than the common stock and this kind of stock will generally be given preference over the common stock in the event of the firm going bankrupt. The preferred shareholders do get some amount of fixed didvidend.

There are types of classes that you will also encounter in the stock market usually Class A and Class B shares. The Class A shares typically will have ten or five votes per share and the Class B shares will have one vote per share. The classification of shares as Class A or Class B can be exactly the opposite for some companies as the companies try to cloak the kind of voting power certain types shares hold. The need for the classification occurs because companies try to provide more voting power to certain section of investors.

As an investor you should be very vigilant and that means reading the company prospectus as well as various bylaws according to which the govern.