Common stock is a form of corporate
equity ownership, a type of
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. The terms voting share and ordinary share are also used frequently outside of the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
. They are known as equity shares or ordinary shares in the UK and other
Commonwealth realms. This type of share gives the
stockholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...
the right to share in the profits of the company, and to vote on matters of
corporate
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
policy
Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an orga ...
and the composition of the members of the
board of directors.
The owners of common stock do not own any particular assets of the company, which belong to all the shareholders in common. A corporation may issue both ordinary and
preference share
Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...
s, in which case the preference shareholders have priority to receive
dividends. In the event of liquidation, ordinary shareholders receive any remaining funds after bondholders, creditors (including employees), and preference shareholders are paid. When the liquidation happens through
bankruptcy, the ordinary shareholders typically receive nothing.
Since common stock is more exposed to the risks of the business than bonds or preferred stock, it offers a greater potential for
capital appreciation
Capital appreciation is an increase in the price or value of assets. It may refer to appreciation of company stocks or bonds held by an investor, an increase in land valuation, or other upward revaluation of fixed assets.
Capital appreciation m ...
. Over the long term, common stocks tend to outperform more secure investments, despite their short-term volatility.
Shareholder rights
Owners of a company's common stock have rights enumerated in its articles, bylaws and applicable corporate law. These can include the right to vote on directors, officers, compensation plans and major business actions such as acquisition or dissolution. Many companies also allow them to submit and vote on proposals to amend the bylaws or to mandate actions by the board.
Pre-emption rights and
shareholder rights plans regulate the terms under which new shareholders can affect the interests of existing ones. Shareholders have the right to request access to the company's financial records, the list of shareholders, and other records that they legitimately require to fulfill their ownership duties.
Classification
Common/Equity stock is classified to differentiate it from preferred stock. Each is considered a
stock class
In finance, a share class or share classification are different types of shares in company share capital that have different levels of voting rights. For example, a company might create two classes of shares class A share and a class B share whe ...
, 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.
See also
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Capital surplus
Capital surplus, also called share premium, is an account which may appear on a corporation's balance sheet, as a component of shareholders' equity, which represents the amount the corporation raises on the issue of shares in excess of their par ...
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Common stock dividend
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Equity (finance)
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Share capital
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Shares authorized
The authorised capital of a company sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its con ...
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Shares issued In finance and law, issued shares are the shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. The act of creating new issued shares is called ''issuance''. Allotment is simply the transfer of sha ...
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Shares outstanding
Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. They are distinguished from treasury shares, which are shares held by the corporation itself, thus represent ...
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Treasury stock
References
{{Authority control
Stock market terminology
Equity securities
Corporate finance