Corporations are usually organized under state laws. Each corporation is authorized by its charter to issue a specified amount of stock, which represents partial ownership (equity) in the corporation. The corporation may issue no more stock than the number of shares of stock authorized by its charter. Often a corporation will be authorized to issue more stock than it plans to sell immediately so that it may sell additional shares in the future without amending its charter.

Stocks are issued by all kinds of companies, from financially sound corporate giants, to established smaller companies looking for capital to expand, to speculative start-up companies with no track record and sometimes no product.

As you contemplate any kind of investment, one of your primary considerations will be your overall investment objectives. Once you have determined that investing in stock is appropriate for you, you will want to keep your objectives in mind to choose the kinds of stock that are appropriate for you.

When considering investing in stock, you should carefully evaluate all aspects of a company, weigh your objectives carefully, and investigate before you invest.

The resources below provide more detail on investing in stocks.

In the past, penny stocks were considered any stocks that traded for less than one dollar per share. The U.S. Securities and Exchange Commission (SEC) has modified the definition to include all shares trading below five dollars.

The term “microcap stock” (sometimes referred to as “penny stock”) applies to companies with low or micro market capitalizations. Companies with a market capitalization of less than $250 or $300 million are often called microcap stocks – although many have market capitalizations of far less than those amounts.

While all investments involve risk, microcap and penny stocks are among the riskiest. Many companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Microcap and penny stocks may also be susceptible to fraud and manipulation.

The resources below describe microcap or penny stocks, how these stocks are traded, how to research microcap companies, and the risks and red flags to consider before investing in microcap stocks.

​When a private company first sells shares of stock to the public, this process is known as an initial public offering (IPO). An IPO means that a company’s ownership is transitioning from private ownership to public ownership. Startup companies or companies that have been in business for decades can decide to go public through an IPO. By their nature, however, IPOs can be risky and speculative investments.

The resource below describes IPOs, registration requirements, how to invest, researching the companies, and things to consider before investing in an IPO.

A SPAC is a shell company that is listed on a stock exchange. The SPAC’s purpose is to pool investor funds to purchase an undetermined private company, thus bringing the private company public. Proceeds raised in the SPAC’s IPO are held in a trust, and those assets are used to acquire the target company. Typically, SPACs must acquire a target company within two years, or else it must return the assets to the shareholders and delist. The management team (“Sponsors”) that operates the SPAC will receive its compensation by claiming a percentage of the newly combined company’s equity.

Investors may think that buying a SPAC is a risk-free strategy because if there is no target, they get their money back. This line of thinking ignores several risks that may generate losses for investors.

Investors should evaluate the quality of the management team behind the SPAC. For example, a management team with experience and a track record of making quality acquisitions may reduce the risk of making a poor acquisition. Even a high-quality management team is not a guarantee of positive returns in a SPAC. Some SPACs may use celebrities to promote their shares, which should be seen as a red flag to investors and their advisers.

The resources below describe the features and risks of investing in a SPAC.