Common Stock

Beginner

Also known as: Ordinary Share

Common stock is the standard type of company ownership. It gives holders voting rights and a share of profits, but they are paid last if the company is wound up.

Most shares issued and traded on stock markets are common stock. Holders typically get one vote per share on major decisions, such as electing the board of directors, and may receive dividends when the company chooses to pay them.

Common stockholders have the most to gain if a company does well, because they own whatever value remains after all other claims are paid. If profits grow, the share price can rise substantially. They also bear the most risk. Dividends are not guaranteed, and in a bankruptcy, common stockholders are paid only after lenders, bondholders and preferred stockholders, often receiving nothing.

For example, if a company is sold for 500 million and owes 400 million to lenders and 50 million to preferred stockholders, common stockholders share the remaining 50 million.

Common stock differs from preferred stock, which usually pays a fixed dividend and has priority over common stock but typically has no voting rights.

Note: Ordinary share is the term used in the United Kingdom and many other countries for common stock. The two mean the same thing.

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