What happens to a company when it issues preference shares?
In most cases , preferential sharesholders are paid dividends first before common shareholders are paid . In the event of a company bankruptcy , preferential shareholders have the right to be paid first before common shareholders. In exchange for these benefits , preferential shareholders do not have any voting rights. The issuing of preferential shares has no impact on share prices or issuing of bonuses , it is a mere coincidence that the stock price went up
As others have posted, the company gains capital in return for its new shares. However, the share price can still fall. The problem is that the share marked is affected by supply and demand like any other marked.  If the company just issues the new shares at marked price, they will have problems finding buyers.  The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work.  So, they issue shares at below marked price to attract buyers and the shares get diluted.  In the end the share will usually end up somewhere between the old marked price and the issue price. The old share owners are probably not too happy about this and will not accept this plan. (At least here in Norway, share issue has to be accepted at a shareholder meeting) So, what is often done instead is to issue buy options for the required number of shares at the below-marked price.  These options are given (for free) to the current share holders proportional to their current holding. If everybody exercises their options they get new cheap shares that compensates for the loss of share value.  If they don't have the capital themselves, they can sell the options and get compensation that way instead. "It depends on the definition of earnings.  A company could have revenue that nets in excess of expenses, so from that perspective a good cash flow or EBITDA, but have debt servicing costs, taxes, depreciation, amortization, that alters that perspective. So if a company is carrying a large debt load, then the bondholders are in the position to capture any excess revenues through debt service payments and the company is in a negative equity positions (no equity or dividends payable to shareholders) and has not produced earnings. If a company has valuable preferred shares issued and outstanding, then depending on the earnings definition, there may be no earnings (for the common stock) until the preferences are satisfied by the returns. So while the venture itself (revenues minus costs) could be cash flow positive, this may not be sufficient to produce ""earnings"" for shareholders, whose claim on the company still entitles them to zero current liquidation value (i.e. they get nothing if the company dissolves immediately - all value goes to bondholders or preferred).  It could also be that taxes are eating into revenue, or the depreciation of key assets is greater than the excess of revenues over costs (e.g. a bike rental company by the beach makes money on a weekly basis but is rusting out half its stock every 3 months and replacement costs will overwhelm the operating revenues)." "It's actually the other way around.  Distributions in an LLC are usually based on  each member's equity share, although the operating agreement can specify how often such distributions are made.  Shareholders in a corporation can receive dividends, but those are determined by the corporation's board and can vary depending on the class of stock each shareholder owns.  Preferred-class shareholders, who may hold a smaller overall fraction of the company's outstanding shares than the common stock shareholders, may receive disproportionately larger dividends per share than common stock shareholders, which is one of the (many) reasons that preferred stock is a better choice when it is available.  Take, for instance, what Berkshire Class ""A"" shareholders receive in dividends per year compared to Class ""B"" shareholders. Here's a good link from LegalZoom that can explain what you're asking about: Explanation of LLC distributions I hope this helps. Good luck!" Theoretically, when a company issues more shares, it does not affect the value of your shares.  The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake.  Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each.  The company receives $100,000 from new investors, and now the company is worth $200,000.  Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling.  When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is.  When a company wants to sell more shares, this is called an increase of authorized share capital.  In order to do this, the company generally needs the approval of a majority of the existing shareholders. At the most basic level, the employee is getting a share of ownership in the company and would get a percentage of the sales price. That said, as littleadv alluded to, different share classes have different priorities and get paid in different orders. In a bankruptcy, for example, some classes almost never get paid in practice because they are so far down the ladder of priority.  The first step you should take would be to try to clarify what you are getting with the company itself. Failing that, contact a financial professional or an attorney in your area who can read the terms and give you a better understanding of the contract before you sign. No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public.  However, the company could issue more shares at the new higher price to raise more capital. I know this has already been answered and I know its frowned upon to dump a link, however, when it comes to investments it's best to get data from an 'official' source to avoid misinterpretations and personal opinions.  The attached pdf is from the S&P and provides detailed, but not overwhelming, information regarding the types of preferreds, the risks & common terminology: http://us.spindices.com/documents/education/practice-essentials-us-preferreds.pdf Page 1: PREFERRED SECURITIES DEFINED  Borrowing from two worlds, a preferred security has both equity and   fixed income  characteristics.  As such, the preferred structure   offers a flexible approach to structuring a preferred offering for an   issuer.   Companies have many reasons to issue preferred securities.  Financial   institutions, for  example, need to raise capital.  Many times they   will use the preferred market because of  any required regulatory   requirements, in addition to cost considerations.  Banks and    financial institutions are required to maintain a certain level of   Tier 1 capital—which  includes common equity and perpetual   non-cumulative preferreds—as protection against  the bank’s   liabilities.  Issuing more common equity comes at a cost, including   the dilution  of existing shares, which a company may not want to   bear.  Preferred securities are a  cheaper alternative approach to   raising the capital.  Companies often use preferred stock for strategic reasons.  Some of   these uses include: "First, note that a share represents a % of ownership of a company. In addition to the right to vote in the management of the company [by voting on the board of directors, who hires the CEO, who hires the VPs, etc...], this gives you the right to all future value of the company after paying off expenses and debts. You will receive this money in two forms: dividends approved by the board of directors, and the final liquidation value if the company closes shop. There are many ways to attempt to determine the value of a company, but the basic theory is that the company is worth a cashflow stream equal to all future dividends + the liquidation value. So, the market's ""goal"" is to attempt to determine what that future cash flow stream is, and what the risk related to it is. Depending on who you talk to, a typical stock market has some degree of 'market efficiency'. Market efficiency is basically a comment about how quickly the market reacts to news. In a regulated marketplace with a high degree of information available, market efficiency should be quite high. This basically means that stock markets in developed countries have enough traders and enough news reporting that as soon as something public is known about a company, there are many, many people who take that information and attempt to predict the impact on future earnings of the company. For example, if Starbucks announces earnings that were 10% less than estimated previously, the market will quickly respond with people buying Starbucks shares lowering their price on the assumption that the total value of the Starbucks company has decreased. Most of this trading analysis is done by institutional investors. It isn't simply office workers selling shares on their break in the coffee room, it's mostly people in the finance industry who specialize in various areas for their firms, and work to quickly react to news like this. Is the market perfectly efficient? No. The psychology of trading [ie: people panicking, or reacting based on emotion instead of logic], as well as any inadequacy of information, means that not all news is perfectly acted upon immediately. However, my personal opinion is that for large markets, the market is roughly efficient enough that you can assume that you won't be able to read the newspaper and analyze stock news in a way better than the institutional investors. If a market is generally efficient, then it would be very difficult for a group of people to manipulate it, because someone else would quickly take advantage of that. For example, you suggest that some people might collectively 'short AMZN' [a company worth half a trillion dollars, so your nefarious group would need to have $5 Billion of capital just to trade 1% of the company]. If someone did that, the rest of the market would happily buy up AMZN at reduced prices, and the people who shorted it would be left holding the bag. However, when you deal with smaller items, some more likely market manipulation can occur. For example, when trading penny stocks, there are people who attempt to manipulate the stock price and then make a profitable trade afterwards. This takes advantage of the low amount of information available for tiny companies, as well as the limited number of institutional investors who pay attention to them. Effectively it attempts to manipulate people who are not very sophisticated. So, some manipulation can occur in markets with limited information, but for the most part prices are determined by the 'market consensus' on what the future profits of a company will be.  Additional example of what a share really is: Imagine your neighbor has a treasure chest on his driveway: He gathers the neighborhood together, and asks if anyone wants to buy a % of the value he will get from opening the treasure chest. Perhaps it's a glass treasure chest, and you can mostly see inside it. You see that it is mostly gold and silver, and you weigh the chest and can see that it's about 100 lbs all together. So in your head, you take the price of gold and silver, and estimate how much gold is in the chest, and how much silver is there. You estimate that the chest has roughly $1,000,000 of value inside. So, you offer to buy 10% of the chest, for $90k [you don't want to pay exactly 10% of the value of the company, because you aren't completely sure of the value; you are taking on some risk, so you want to be compensated for that risk].  Now assume all your neighbors value the chest themselves, and they come up with the same approximate value as you. So your neighbor hands out little certificates to 10 of you, and they each say ""this person has a right to 10% of the value of the treasure chest"". He then calls for a vote from all the new 'shareholders', and asks if you want to get the money back as soon as he sells the chest, or if you want him to buy a ship and try and find more chests. It seems you're all impatient, because you all vote to fully pay out the money as soon as he has it. So your neighbor collects his $900k [$90k for each 10% share, * 10], and heads to the goldsmith to sell the chest. But before he gets there, a news report comes out that the price of gold has gone up. Because you own a share of something based on the price of gold, you know that your 10% treasure chest investment has increased in value. You now believe that your 10% is worth $105k. You put a flyer up around the neighborhood, saying you will sell your share for $105k. Because other flyers are going up to sell for about $103-$106k, it seems your valuation was mostly consistent with the market.  Eventually someone driving by sees your flyer, and offers you $104k for your shares. You agree, because you want the cash now and don't want to wait for the treasure chest to be sold. Now, when the treasure chest gets sold to the goldsmith, assume it sells for $1,060,000 [turns out you underestimated the value of the company]. The person who bought your 10% share will get $106k [he gained $2k]. Your neighbor who found the chest got $900k [because he sold the shares earlier, when the value of the chest was less clear], and you got $104k, which for you was a gain of $14k above what you paid for it. This is basically what happens with shares. Buy owning a portion of the company, you have a right to get a dividend of future earnings. But, it could take a long time for you to get those earnings, and they might not be exactly what you expect. So some people do buy and sell shares to try and earn money, but the reason they are able to do that is because the shares are inherently worth something - they are worth a small % of the company and its earnings."