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  What is capital stock?  

 

Capital stock is simply a collective term for the ordinary shares of stock that companies issue.

Large companies often divided their capital stock into various classes. In those cases, each class of stock enjoyed certain rights that distinguished it from other classes.

In the United States, the two most popular classes of capital stock have always been common stock and preferred stock. Other typical classes include non-voting stock, employee stock, and ordinary stock. Debenture stock is a popular term seen on Canadian certificates. While there are several possible classes of stock, companies rarely issue more than two or three different types at one time.

If a stock certificate is specifically labeled capital stock, and it lacks any other designation, then you can usually assume that the issuing company probably issued only one variety of stock at that time. In those cases, "capital stock" is synonymous with "common stock."

It has been normal behavior for companies to add additional classes of stock as they became increasingly successful. When that happened, preferred stock was usually added and capital stock was usually renamed as common stock.

If you read the text on stock certificates specifically labeled as either common or preferred, you will find many contain the word "capital." In fact, the earlier certificates were often labeled "common capital stock" or "preferred capital stock." This tells you that common and preferred shares are really classes of capital stock.

As indicated above, common shares and preferred shares have specific and different rights. See more discussion in Stock Certificate Terminology.

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(Last updated Oct 5, 2012)