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Common stock is a form of corporate
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the differe ...
ownership, a type of
security Security is freedom from, or resilience against, potential Potential generally refers to a currently unrealized ability. The term is used in a wide variety of fields, from physics Physics is the natural science that studies matter, its El ...
. 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 Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
. They are known as equity shares or ordinary shares in the UK and other
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good In philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, Metaphysics, existenc ...

Commonwealth
realms. This type of share gives the
stockholder A shareholder (also known as stockholder) is an individual or institution (including a corporation 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 ...
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 A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal ...

corporate
policy Policy is a deliberate system of guideline A guideline is a statement by which to determine a course of action. A guideline aims to streamline particular processes according to a set routine or sound practice. Guidelines may be issued by a ...

policy
and the composition of the members of the
board of directors A board of directors is a group of people who jointly supervise the activities of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, W ...
. 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 which may have any combination of features not possessed by common stock including properties of both an equity and a debt instru ...
s, in which case the preference shareholders have priority to receive
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
s. 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 Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditor A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' par ...

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 asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can ...
. Over the long term, common stocks tend to outperform more secure investments, despite their short-term volatility.


Shareholder rights

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 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 Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

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 Abstention is a term in election procedure for when a participant in a Voting, vote either does not go to vote (on election day) or, in parliamentary procedure, is present during the vote, but does not cast a ballot. Abstention must be contrast ...
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.


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 Share (finance), 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 cla ...
, 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

*
Capital surplus Capital surplus, also called share premium, is an account which may appear on a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a lega ...
*
Common stock dividend A common stock dividend is the dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), n ...
*
Equity (finance) In finance, equity is ownership of assets that may have debts or other Liability (financial accounting), liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For exampl ...
*
Share capital __NOTOC__ A corporation's share capitalGlossary on Trade Financing Terms - S
in the U ...
*
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 consti ...
*
Shares issued In financial markets A financial market is a market (economics), market in which people trade financial Security (finance), securities and derivative (finance), derivatives at low transaction costs. Some of the securities include stocks and Bo ...
*
Shares outstanding Shares outstanding are all the share Share may refer to: * Share, to make joint use of a resource (such as food, money, or space); see Sharing * Share (finance), a stock or other financial security (such as a mutual fund) * Share, Kwara, a town and ...
*
Treasury stock A treasury stock or reacquired stock is stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at ...


References


External links


Common Stock vs. Preferred Stock
{{Authority control Stock market terminology Equity securities Corporate finance