The Capital Stock clause defines the number, type, and rights of equity interests in the corporation. Typically, the clause will provide for the authorization of common stock and preferred stock.
Common stock represents a partial ownership interest. This class of stock carries voting rights, which unless restricted, entitles the holder to one vote per share. Common stock holders may receive dividends and liquidation payments, but only after the corporation have satisfied it obligations to the preferred stock holders.
Preferred stock also represents a partial ownership interest. It generally does not entitle the holders to voting rights. However, the stock typically pays a fixed dividend and grants the holders prior rights in the event of bankruptcy to receive payment.
The clause typically grants the Board of Directors with the power to grant specific rights and restrictions with respect to the capital stock.