Common Stock
Common stock is a security that represents ownership in a corporation and provides shareholders with voting rights and a residual claim on company profits and assets after other obligations are met.
Definition
Common stock is a type of equity security that represents ownership in a corporation. Holders of common stock own a proportional share of the company and are considered residual owners.
Common shareholders have voting rights, typically allowing them to elect the board of directors and vote on key corporate matters. Their claims on company assets rank behind bondholders, preferred shareholders, and other creditors.
How It Works
Corporations issue common stock to raise capital for operations, expansion, or investment. Each share represents a fractional ownership interest in the company.
Common stockholders may benefit from price changes in the stock and, if declared, dividend payments. In the event of liquidation, common shareholders receive assets only after all higher-priority claims are satisfied.
Why the Term Matters
Common stock is the most widely held form of corporate ownership and serves as the foundation of public equity markets.
Understanding common stock helps explain how companies raise capital, how corporate control is structured, and how risk and ownership are distributed among investors.
Related Concepts
- Preferred Stock
- Shareholder Equity
- Voting Rights
- Dividends
- Market Capitalization
- Liquidation Priority
FAQs
What does owning common stock represent?
Owning common stock represents partial ownership in a corporation.
Do common stockholders have voting rights?
Yes, common stockholders typically have the right to vote on corporate governance matters.
How are common shareholders paid in liquidation?
Common shareholders are paid last, after creditors and preferred shareholders are fully repaid.
Is common stock shown on a company’s balance sheet?
Yes, common stock is reported in the shareholders’ equity section of the balance sheet.
Does common stock guarantee dividends?
No, dividends on common stock are not guaranteed and depend on company decisions.
This article was created with AI assistance and reviewed by an editor. For more information, please refer to our Terms of Use.
Risk Disclosure
All content is provided for educational purposes only and does not constitute investment advice. Trading involves risk, and past performance is not indicative of future results. Please review our full Risk Disclosure for additional details.
Explore the SharperTrades Academy
For readers who want to deepen their understanding of market structure, risk management, and price behavior, explore the SharperTrades Academy, where we publish clear, evergreen explanations designed to support ongoing learning.