Equity ownership in a corporation carrying the right to vote, receive dividends if declared, inspect books, maintain proportionate ownership (preemptive rights), and claim residual assets last in a liquidation.
Authorized shares are the maximum the charter permits; issued shares have been sold; outstanding shares are issued minus treasury stock. Statutory voting allows one vote per share per board seat, while cumulative voting lets shareholders concentrate (aggregate) their votes — an advantage for small/minority investors trying to win a board seat.
The exam loves to rank you in a liquidation priority order: secured creditors first, then general (unsecured) creditors and debenture holders, then preferred stock, and common stock dead last as the residual claimant. Watch the voting trap: only common votes and holds the preemptive right, whereas preferred is typically non-voting but outranks common for both dividends and liquidation. Don’t confuse treasury stock (repurchased shares that carry no vote and pay no dividend) with outstanding shares. A second classic tell pairs common with rights — the preemptive right to buy new shares at a subscription price below market to protect proportionate ownership — versus a warrant, a long-dated sweetener (priced above market at issue), not an inherent common-stock right. Memory hook: common = last to eat, first to grow.
Equity with a fixed stated dividend, priority over common stock for dividends and liquidation, and normally no voting rights; its market price behaves like a bond, falling when interest rates rise.
The exam loves to make you rank claimants in a liquidation: secured creditors, then bondholders/debentures, then preferred ahead of common, with common last. The tell is “which security is paid first” or “highest stated yield among preferred types” — adjustable-rate preferred trades the most price stability, so it carries the lowest stated yield, while callable preferred carries the highest. Another favorite: a missed dividend on cumulative preferred accrues in arrears, but straight (noncumulative) preferred simply loses it forever. Remember: preferred is paid before common, never before debt.
Watch the classic traps. Unlike common stock, preferred normally has no voting and no preemptive rights — so questions about electing directors or maintaining proportional ownership point to common. Don’t confuse a stock dividend (untaxed at receipt — the same basis just spreads over more shares) with preferred’s fixed cash payout. And because its price tracks rates like a bond, the same interest-rate risk logic applies — rising rates push preferred prices down, falling rates make callable issues vulnerable to redemption exactly when reinvestment hurts.
Both let the holder buy the issuer's stock at a set price: preemptive rights are short-term (weeks), issued to existing shareholders, and priced below the market; warrants are long-term (often years), usually attached to other securities as a sweetener, and priced above the market at issuance.
The exam loves the “which feature, which instrument” swap. The “tell”: a right is exercisable below today’s price, so it has intrinsic value the moment it’s issued, while a warrant starts out-of-the-money and pays off only if the stock climbs. Watch the offering vocabulary too — the oversubscription privilege belongs to existing shareholders (it lets them claim unsubscribed shares), whereas a standby underwriter is the firm that agrees to buy whatever shares the rights holders don’t.
Don’t confuse a warrant with a call option: both let you buy stock at a set price, but a warrant is issued by the company, so exercising it creates new shares and dilutes existing holders, while a call is written by another investor and never dilutes. Neither rights nor warrants pay dividends or carry votes — those belong to the underlying common stock — and unlike convertible preferred (swapped for common with no new cash), exercising costs you cash. Memory hook: Rights are Right now (cheap, quick); warrants make you wait.
Negotiable certificates, issued by U.S. banks and traded in U.S. markets in dollars, that represent shares of a foreign company held on deposit overseas — the standard way U.S. investors buy foreign equities.
Exam items lean on one comparison: an ADR lets a U.S. investor own a foreign company without trading on an overseas exchange in foreign currency, yet the holder still carries exchange-rate (currency) risk. The classic “tell” is a question asking which risk an ADR does NOT eliminate — the answer is currency risk, because the underlying dividend is paid abroad in the foreign currency and converted to dollars by the depositary, so a weaker foreign currency shrinks the payout. Watch the rights trap: ADR holders typically forgo preemptive rights and have limited (or no) voting, so an “all of the following are rights of ADR holders” question excludes voting/preemptive.
Distinguish ADRs from plain common stock, which carries voting and (if the charter grants them) preemptive rights, plus dividends when declared — an ADR is a receipt for shares on deposit, not direct registered ownership. Versus currency & political risk, remember ADRs strip away the mechanics of foreign investing but not the risks. A common mistake is assuming dollar-denominated trading hedges the currency; it does not. Memory hook: ADR = “American wrapper, foreign risk.”
Distributions of corporate earnings — cash or additional stock — declared by the board; the sequence of dates runs declaration, ex-dividend, record, and payable.
The classic SIE item hands you a calendar and asks which trade date still captures the dividend — the tell is the settlement clue. With T+1 settlement, a regular-way buy on the business day before the record date settles in time and qualifies (some older question banks still hinge on the retired T+2 rule, where the ex-date fell one business day before the record date). A trickier variant asks who must “fund” a dividend on shares sold around the ex-date — answer: short sellers, since the short seller owes the dividend to the lender of the borrowed shares.
Don’t confuse the four dates with split or stock-dividend mechanics: a cash dividend lowers price by the dividend amount; a forward split or stock dividend lowers price proportionally (a 2-for-1 halves it) without an ex-date settlement trap. Memory hook: “buy before the X” — once the X (ex) is crossed, the dividend is gone. Also recall who owns each date: the board declares, sets the record date, and pays; the exchange/FINRA sets the ex-date.
A change in the number of outstanding shares with a matching price adjustment so total market value is unchanged: forward splits (e.g., 2-for-1) lower the price; reverse splits raise it.
The exam loves the reverse-split math because students freeze on it: a 1-for-10 reverse split of 1,000 shares at $2 leaves 100 shares at $20 — divide shares, multiply price, position value unchanged. The “tell” is that a reverse split is cosmetic, not value-creating — it fixes nothing fundamental and often signals distress, done to regain the $1 minimum bid price for listing. A second favorite asks about resting GTC orders: a forward split adjusts open limit orders (price reduced, size increased), while a reverse split cancels them. Note that DNR (“do not reduce”) shields orders only from cash-dividend price cuts, not from split adjustments.
Don’t confuse a split with a stock dividend — both are non-taxable and lower cost basis per share, but a dividend capitalizes retained earnings into paid-in capital, while a split restates par value. And don’t conflate either with a buyback (treasury stock), which actually shrinks outstanding shares and lifts EPS; a split changes neither. Memory hook: a split just slices the same pizza into more pieces.
Shares a corporation has issued and then repurchased; treasury stock carries no voting rights, pays no dividends, and reduces the count of outstanding shares.
The classic item gives you authorized, issued, and outstanding numbers and asks you to back out treasury shares: outstanding = issued − treasury, and only outstanding shares vote, draw dividends, and count in the EPS denominator. The “tell” is any prompt about why a company repurchases (boost EPS, return cash, fund employee plans, defend the price) or about what treasury stock can and cannot do — the trap answer credits it with a vote or a dividend. Remember treasury shares are issued but not outstanding, so they sit in a limbo that pays nothing and says nothing.
Don’t confuse a buyback with a stock split or stock dividend: those leave each holder’s percentage ownership unchanged, while a repurchase actually shrinks the pool and lifts remaining owners’ stakes. Versus common stock, the point is that the corporation as buyer gets no shareholder rights on its own shares. And watch the resale trap — when the issuer resells treasury stock it is a new issuer sale requiring registration or an exemption, not an exempt secondary trade.
Restricted stock is unregistered stock acquired privately (e.g., in a private placement) that generally must be held six months before resale; control stock is registered stock held by affiliates (officers, directors, >10% owners), whose sales face volume limits under Rule 144.
The exam loves a two-part trap: it gives you a fact pattern and makes you decide which Rule 144 condition applies — the holding period or the volume cap. The tell is how the shares were acquired: privately/unregistered points to restricted stock and the holding period; held by an affiliate (officer, director, or >10% owner) points to control stock and the volume formula, regardless of how those shares were bought. Watch for the Form 144 trigger — filing is required only when a sale exceeds 5,000 shares or $50,000 in any 90-day period (the SEC text says “three months”), and the form is good for 90 days.
The classic mistake is thinking control stock has a holding period (it does not — only restricted does) or that restricted stock can never be sold (it can, after the hold). Don’t confuse this with treasury stock (issuer-owned, no vote/dividend) or a fresh issuer resale, and keep it separate from rights and warrants, which are purchase instruments, not resale restrictions. Hook: Restricted = Rest (hold it); control = count the volume.