The company must issue a prospectus, listing all of the potential risks involved in its operations as well as its profit potential. If the shares are to be offered in more than one state, this prospectus must be reviewed by the federal Securities and Exchange Commission, or SEC, which can require the company to provide additional warnings if it feels the prospectus is overly optimistic about the company's chances of success. Even after the prospectus is approved by the SEC, however, that doesn't mean the SEC endorses the stock offering. All it means is that the prospectus has made the disclosures required under federal law. Similar requirements are imposed by state laws when the stock is being offered for sale to the public in only a single state.
Stocks fall into one of two categories.
Common stock, is, as its name suggests, the type of stock most commonly issued by a corporation. If the company profits, its management may decide to pay out what's known as a dividend, a share of the profits. Or it may decide not to pay dividends, and instead reinvest the profits in expanding the business. When you own common stock, you have no specific right to receive dividends unless and until the board of directors votes to issue them. And even if you are receiving dividends on shares of common stock, the board can decide to terminate them if it feels the money you are receiving could be put to better use elsewhere.