Common stock
Encyclopedia
Common stock is a form of corporate equity
ownership, a type of security
. It is called "common" to distinguish it from preferred stock
. In the event of bankruptcy
, common stock investors receive their funds after preferred stock
holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time.
Common stock is usually voting shares, though not always. Holders of 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.
Additional benefits from common stock include earning dividends and capital appreciation
.
It can also be known as Ordinary Shares.
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
ownership, a type of security
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
. It is called "common" to distinguish it from preferred stock
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
. In the event of bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, common stock investors receive their funds after preferred stock
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time.
Common stock is usually voting shares, though not always. Holders of 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.
Additional benefits from common stock include earning dividends and capital appreciation
Appreciation
In accounting, appreciation of an asset is an increase in its value. In this sense it is the reverse of depreciation, which measures the fall in value of assets over their normal life-time...
.
It can also be known as Ordinary Shares.
See also
- Shares authorizedShares authorizedShares authorized is the maximum number of shares that a company can issue. This number is specified in the company's articles of association but can be changed by shareholders' approval...
- Shares issued
- Shares outstandingShares outstandingShares outstanding are common shares that have been authorized, issued, and purchased by investors. They have voting rights and represent ownership in the corporation by the person or institution that holds the shares. They should be distinguished from treasury shares, which is common stock held by...
- Share capitalShare capitalShare capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
- Treasury stockTreasury stockA treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ....
- Capital surplusCapital surplusCapital surplus term that frequently appears as a balance sheet item as a component of shareholders' equity. Capital surplus is used to account for that a firm raises in excess of the par value of the shares ....
- Shareholders' equity