Stocks vs Shares: What You Need to Know

What are stocks?

Stock is a broader term used to describe the type of equity (ownership), primarily categorized as:

Common stock – typically held by founders and employees. It comes with standard voting rights but no liquidation preference.

Preferred stock – usually issued to institutional, venture, or angel investors. It often comes with negotiated privileges like liquidation preference, anti-dilution protection, and dividend rights.

You don’t issue “stock” generically; you issue shares of stock.

For example, a company might issue 1,000,000 shares of common stock to its founders and 200,000 shares of Series A preferred stock to its investors.

What are shares?

A share is a specific unit of ownership in a company. When a startup issues equity, it's issuing a number of shares, each carrying defined rights and obligations. 

These shares are what show up on the cap table, giving a clear snapshot of:

• Who owns what (e.g. 20,000 shares issued to the founder)
• What class the shares belong to (e.g. Class A common shares, Series A preferred shares)
• What rights they carry (e.g. voting, dividend participation, liquidation priority)
• Any conditions attached (e.g. vesting, restrictions, partial payment)

Shares are issued under different classes of stock. 

Each stock class like Class A common stock or Series A preferred stock defines a specific set of rights and privileges, such as voting power, dividend rights, or liquidation preferences. 

So:

Stock = the type of equity (e.g., common or preferred)

Classes of stock = different rights or terms within a stock type (e.g., Class A common vs. Class B common)

Shares = the specific units issued under that type

Difference between stock and share

Types of stock

From a cap table perspective, when you hear “types of stock,” you’re really talking about the classes of equity a company can create. These classes define the rights, preferences, and privileges attached to ownership.

1. Common stock

• Typically issued to founders, early employees, and sometimes advisors.
• Carries standard voting rights (usually one vote per share).
• Residual claim in liquidation (i.e., gets paid last).
• Most likely to be granted through equity plans to employees (e.g., ESOPs).

2. Preferred stock

• Usually issued to investors during funding rounds.
• Has special rights like liquidation preferences, anti-dilution protection, and sometimes dividend rights.
• May have limited or no voting rights (though this varies).
• Convertible to common stock, especially at IPO or acquisition.

Classes within stock types

Each stock type can be further divided into classes depending on the company’s goals.

Examples:

• Class A common shares – might go to employees with voting rights.
• Class B common shares – might be issued to founders with enhanced voting power.
• Series A preferred shares – often given to first-round investors.
• Series B preferred shares – issued in later rounds with different terms.

Each class is defined in the company’s charter documents, outlining its rights (voting, dividends, liquidation preference, etc.).

Types of shares

While stock types define the broad category of ownership, share attributes specify how individual shares within those types behave.

Companies often create different types of shares within a stock class to manage investor expectations or preserve founder control 

So:

1. Types of stock define broad categories (Common vs. Preferred)
2. Share classes define how those categories are structured (Class A, Series A, etc.)
3. Attributes like voting rights, redemption, and participation are layered on top of share classes

1. Ordinary shares

These are the most commonly issued shares and typically come with standard rights such as voting power, dividend participation, and access to key company information. 

Variants of ordinary shares:

Variations of ordinary shares are often used to meet the needs of different stakeholders while retaining overall control within a smaller group.

a. Non-voting shares

These are ordinary shares issued without voting rights. Commonly used to grant ownership to employees, advisors, or family members without diluting decision-making control.

b. Deferred shares

Ordinary shares with lower priority in dividends or liquidation proceeds. Often used in founder arrangements or internal restructurings where payouts are delayed or deprioritized.

c. Management shares

A special class of ordinary shares that carry enhanced voting rights such as 5 or 10 votes per share that allow select shareholders to retain strategic control of the company.

2. Preference shares

Preference shares are a type of equity that provides preferential treatment in dividends and liquidation proceeds. They are typically issued to investors and may or may not carry voting rights, depending on the terms set by the company.

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Variants of preference shares:

a. Standard preference shares

These offer fixed dividends and have priority over ordinary shares during a company’s liquidation. Voting rights are typically limited or not granted.

b. Redeemable shares

These are preference shares that the company can repurchase at a future date under agreed-upon conditions. They are commonly used for investor exits or in strategic funding rounds.

c. Convertible preference shares

These can be converted into ordinary shares based on predefined triggers (e.g., an IPO, funding milestone, or acquisition). This feature is often used in venture financing to balance investor downside protection with future upside potential.

d. Participating preference shares

These entitle holders to fixed dividends and a share in any surplus profits or liquidation proceeds, offering greater upside than standard preference shares.