Common stock

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Common stock is a form of corporate equity ownership, a type of security. The terms "voting share" or "ordinary share" are also used frequently in other parts of the world; "common stock" being primarily used in the United States.

It is called "common" to distinguish it from preferred stock. If both types of stock exist, common stockholders usually cannot be paid dividends until all preferred stock dividends are paid in full; it is possible to have common stock that has dividends that are paid alongside the preferred stock.

In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors (including employees), and preferred stockholders are paid. As such, common stock investors often receive nothing after a liquidation bankruptcy Chapter 7.

On the other hand, common shares may perform better than preferred shares or bonds over time, in part to accommodate the increased risk.[1]

Shareholder rights[edit]

Shareholder rights are more conceptual than technical or factual. Their most common source is in the statutory and case law of the jurisdiction in which the company was formed. Information about what people think of as shareholder rights can also be found in the corporate charter and governance documents, but companies do not actually have documentation outlining specific "Shareholder Rights." Some shareholders elect to enteeholder agreements that create new rights among the shareholders, and it is common for the company to be a party to that agreement.

Some common stock shares have voting rights on certain matters, such as electing the board of directors. However, a company can have both a "voting" and "non-voting" series of common stock, as with preferred stock.

Hypothetically speaking, holders of voting common stock can influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. In practice, it's questionable whether or not such actions can be organized or ruled in their favor. Some shareholders, including holders of common stock, also receive preemptive rights, which enable them to retain their proportional ownership in a company if it issues additional stock or other securities. There is no fixed dividend paid out to common stockholders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock.[2]

Additional benefits from common stock include earning dividends and capital appreciation.

The residual value of the company is called common stock. A voting share (also called common stock or an ordinary share) is a share of stock giving the stockholder the right to vote on matters of corporate policy and the composition of the members of the board of directors.

Classification[edit]

Common stock is classified to differentiate it from preferred stock. Each is considered a "class" of stock, with different series of each issued from time to time such as Series B Preferred Stock. Nevertheless, using "Class B Common Stock" to label a super-voting series of common stock is commonly found.

Ordinary shares[edit]

Ordinary shares are also known as equity shares and they are the most common form of share in the UK. An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.

See also[edit]

References[edit]

  1. ^ "Common Stock". Investopedia.com. ValueClick. Retrieved 2013-05-12. 
  2. ^ "Characteristics of common stock". 

External links[edit]