Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently in other parts of the world; "common stock" being primarily used in the United States. They are known as Equity shares or Ordinary shares in the UK and other Commonwealth realms. This type of share gives the stockholder the right to share in the profits of the company, and to vote on matters of corporate policy and the composition of the members of the board of directors.
It is called "common" to distinguish it from preferred stock. If both types of stock exist, common/equity stockholders usually cannot be paid dividends until all preferred/preference 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.
Common stockholders can also earn money through capital appreciation. Common shares may perform better than preferred shares or bonds over time, in part to accommodate the increased risk.
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 enter into shareholder 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 in the United States, a company can have both a "voting" and "non-voting" series of common stock, as with preferred stock, but not in countries which have laws against multiple voting and non-voting shares
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/equity stockholders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock.
Common/Equity 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" is a common label for a super-voting series of common stock.
- Capital surplus
- Equity (finance)
- Share capital
- Shares authorized
- Shares issued
- Shares outstanding
- Treasury stock