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 stock holders cannot be paid dividends until all preferred stock dividends are paid in full.
In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors (including employees), and preferred stock holders are paid. As such, common stock investors often receive nothing after a bankruptcy.
On the other hand, common shares on average perform better than preferred shares or bonds over time.[1]
Contents
Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors. However, a company can have both a "voting" and "non-voting" class of common stock.
Holders of voting common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, efficiency of the market to value and sell stock.[2]
Additional benefits from common stock include earning dividends and capital appreciation.
Classification
Common stock is classified to differentiate the founders' share from publicly held stock. 'Class A' is frequently used to designate the publicly held portion of the firm's common stock, while 'Class B' is used for the founders' share. Class B share usually holds more voting rights, sometimes 10 votes per share compared to 1 vote per share; the standard for Class A share. [3]
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. 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.
See also
- Capital surplus
- Equity (finance)
- Share capital
- Shares authorized
- Shares issued
- Shares outstanding
- Treasury stock
