Last Updated: December 16, 2021

Different Stock Options for Your Company

What Is Common Stock?

Common stock is a form of corporate ownership shares that serve as a claim on profits (dividends). When a corporation earns a profit or windfall, it is able to re-invest it back into the business. It can also direct a portion of the profit in the form of a dividend to shareholders. With common stock investors get a vote to elect board members. Voting allows investors to influence corporate policy and management issues.

What Is Preferred Stock?

With preferred stocks, shareholders typically have no voting rights nor control over management and corporate policy issues.

In early-stage startups, there are typically two categories of equity holders:

(1) founders and early employees, who are more than likely to receive common shares, and

(2) investors, who are generally issued preferred stock as a receipt for their investment in the company.

Startup founders need to be consider a few key things relative to preferred and common stock. These include but are not limited to:

1. Who has voting rights

2. Clauses that dictate preferred stockholder arrangements such as liquidation preferencesright of first refusalpro-rata rights, and even anti-dilution rights.

3. Allocation of proceeds upon liquidation

Once the common and preferred stock options are in place, it is important to keep this information in a safe place so there is no confusion or legal arguments later on. This is where Equa can help! Equa gives businesses the ability to store documents and keep an organized true source of information with no confusion.

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