Understanding Alphabet Stocks

Most of us invest or will invest in shares of a company, let’s understand a different type of share.

Before learning about alphabet stock, let’s revise a company’s financial structure.

A stock in a company’s capital structure is just like a brick in a building. A company needs funds for its operations. Till the time the same company can arrange enough funds privately, it is considered a private company. The moment it starts accepting funds from the public, it becomes a public company. The money raised is named as common stock of the company. 

A type of common stock is alphabet stock. Let’s understand common stock better before we can comprehend the alphabet stock.

What is common Stock?

When the share capital is divided into smaller parts, those smaller parts are called the common stock. These shares literally mean a share in the profits of the company and voting rights on the policies formed by the company. The company’s common stock is made up of all different shareholders.

When we compare debt and equity, debt instrument holders are prioritized above equity holders at the time of repayment on the occasion of liquidation. This makes the equity segment risky but the other element which comes along is the reward. They receive a portion of the company’s profit, voting rights, and capital appreciation as well.

Introduce Alphabet stocks here for a better flow

What is Alphabet Stock?

It is a common stock representing its stakes in a subsidiary company. The acquisition of a subsidiary by the parent firm gave rise to Alphabet stock. The stock represents the holding of a subsidiary company resulting to be a part of the profits of the subsidiary as well as the voting of the policies of the subsidiary company. 

The alphabet stock may not have the same voting privileges or dividend distribution as the stock of the parent firm. The two firms’ acquisition terms will determine everything. The parent company decides if it wants the subsidiary company to be publicly traded or not.

When a company has alphabet stocks, the capital structure is generally considered to be pretty complex as it has many subsidiary companies.

The reason behind the name

Now that we know the meaning of alphabet stocks, let’s understand what’s the reason behind such a unique name. It is because of the name of the stocks. To identify an alphabet stock, a period and a letter are added to the parent company’s stock name.

Let’s take an example to understand it better. Assume that the company’s common stock is ABC. The alphabet stock may be indicated by ABC. A or ABC.B.

Example of Alphabet Stock

Google Inc.’s parent company, Alphabet Inc., was established in 2014, and it converted the original GOOG  to GOOGL Class A shares with one voting right. A new class of shares, GOOG, was nevertheless established as Class C shares without voting rights. This guaranteed that the founder’s interests were safeguarded in the company and that the original company’s voting rights were preserved.

Both Alphabet Inc. shares are now trading at similar levels on NASDAQ. The same might not apply to every Alphabet stock, though. It depends on how the parent company handles the alphabet stock and how the subsidiary firm is listed.

At present, the corporation offers the following share classes:

Class A shares:

GOOGL.- One vote per share is their voting privilege. They are traded on NASDAQ.

Class C shares:

GOOG.- They are not allowed to vote. They trade on the NASDAQ as well.

Class B shares-

Super voting shares are class B shares. They cannot be bought or sold on the secondary market. They are owned by early investors and Google insiders.

Special considerations

The terminology used by the alphabet stock contributed to its name. To identify an alphabet stock, a period and a letter are added to the main company’s stock name.

Assume that the company’s common equity is ABC. The alphabet commodity may be indicated by ABC.A or ABC.B.

Separating voting rights among the groups of alphabet shares is also not strictly regulated. However, the dividends and voting powers of two alphabet stocks may vary.

Final words

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