Just like sections on an airplane or levels of aristocracy, stocks can come in different classes. They describe different kinds of stocks, with varying rights and voting power. Typically, these classes get assigned letters to distinguish one from another: Class A, Class B, etc.
The exact distinctions between classes differs from company to company. There are no hard rules. However, a sample situation might go like this:
Class A stock has no voting rights, but receives a dividend. Class B stock doesn't receive a dividend, but holders get all the voting rights. This setup would allow original owners to issue themselves all the Class B stock early in the company-creation process. Then they can spread the Class A stock more widely.
In this scenario, owning Class A shares would let you participate in the economic benefits of the company (i.e. getting dividend payments). However, you don't have any say about the direction of the company. That right is reserved for the Class B owners.
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Finance: What are the Major Classes of B...8 Views
Finance a la shmoop what are the major classes of bonds? well there's world
history advanced trig intro to growing a moustache but of course that's just for [Books appear on table]
college bound bonds who are trying to impress the top tier universities well
in terms of bond classes in the real world there are so many flavors to
choose from first we've got senior obligation bonds [Man walking in street and senior obligation bond appears]
and these guys aren't cranky or gray-haired they are the first type of
bonds that a company would have to pay if they went bankrupt they're often
considered the most secure types of bonds for just that reason so they pay [Senior obligation bond stamped with most secure]
less interest then there are junior obligation bonds which are slightly less
secure than senior bonds so they've paid a little bit more rent on the money if a
company declares bankruptcy the juniors are paid after the seniors duh...
sophomores, freshmen get behind them asset-backed bonds are a different thing
and they're backed by the assets a company has for example an airline might [Plane landing on runway]
guarantee its bonds via the airplanes it owns if it owns them all right moving on
then we have debentures which are backed only by the creditworthiness of the
company so basically the company is just handing you an IOU and promising to pay [People shaking hands]
you back with a handshake trust us yeah sure so debentures have to pay
even more interest and if the company messes up and can't pay you back well
too bad cupcake the only comfort you would have in that situation is that the
company's credit would be wrecked forever if they couldn't pay their [Miley Cyrus swinging on wrecking ball]
debentures or other forms of bonds at the end of the CEOs career and pretty
much all the management and so on so they would really hate to go bankrupt yet
with the debenture yeah and that that all might be cold comfort to you though
especially if your investments were the ones wiped out by them not paying their [Woman appears at office desk]
debentures and well then you can't pay your utility bill all right moving on
convertible bonds like their name suggests can be converted usually into
common stock at a given price to the given time period you can make a tidy
profit converting bonds into stocks if a company suddenly starts to do well and
stock prices really increase like we had $1,000 per bond convertible into 20 [1,000 dollar par bond appears]
shares of stock well when the stocks only at 10 bucks that's not
very attractive but if that stock went to $50 it'd be like break-even if I went
to $100 while the bond converts and you'd double your money there...
all right well finally there are zero
coupon bonds which don't pay you anything until the very end you buy them
at a big discount like six hundred twelve dollars and then they pay par
a thousand dollars like ten years later once they reach maturity they pay back
what you invested plus all the interest that is built up in one chunk... think
high school dating the problem is that some companies have a hard time paying [Man stood beside vault of cash]
back all these payments at once and you get no interest payment along the way
with a zero coupon bond so they tend to pay even more interest which is good for
the person lending the money assuming that they actually get paid back their [Interest money transfers from borrower to lender]
interest in principal at the end of the zero coupon right well some company set
up special funds like bond sinking fund equivalents so that well they have [Cash falling]
enough money at the end to pay back their bonds once those bonds reach maturity
unlike the writers here at Shmoop you know the maturity thing will never
happen [Shmoop worker using PC]
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