Common Stock
Common stock is a security representing ownership in a corporation, giving shareholders voting rights and potential dividends.
Exam Tip
Remember: Common stockholders vote but are paid LAST in liquidation.
What is Common Stock?
Common stock represents an ownership share in a corporation. When you buy common stock, you become a part-owner of the company.
Key Characteristics
| Feature | Description |
|---|---|
| Voting Rights | Typically 1 vote per share on corporate matters |
| Dividends | May receive dividends, but not guaranteed |
| Liquidation Priority | Paid last after creditors and preferred shareholders |
| Risk Level | Higher risk, higher potential reward |
| Liability | Limited to amount invested |
Rights of Common Stockholders
- Voting rights - Elect board of directors, approve major decisions
- Dividend rights - Share in profits when declared
- Preemptive rights - Maintain ownership percentage in new issues (if offered)
- Residual claim - Share remaining assets after liquidation
Common Stock vs. Preferred Stock
Common stockholders have voting rights but are last in line for dividends and liquidation proceeds. Preferred stockholders get priority for dividends but typically cannot vote.
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Related Terms
Preferred Stock
SecuritiesPreferred stock is a hybrid security with features of both stocks and bonds, offering fixed dividends and priority over common stock in liquidation.
Dividend
SecuritiesA dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.