Legal Definitions - class of stock

Class of stock refers to a category of corporate shares that are issued when a company has more than one type of stock. There are two main types of stock: preferred stock and common stock. Preferred stockholders have priority over common stockholders when it comes to receiving dividends and assets during liquidation. Common stockholders have voting rights and can participate in the company's management.

For example, a company may issue Class A and Class B shares of stock. Class A shares may have more voting rights than Class B shares, but Class B shares may have priority when it comes to receiving dividends.

Another example is cumulative preferred stock, which guarantees that the holder will receive all missed dividends before common stockholders receive any dividends.

Understanding the different classes of stock is important for investors because it can affect their rights and potential returns.