Common Stock

Common stock represents an ownership interest in a company. The holder of common stock shares the operating performance of the company since they own a part of the company by buying these common shares/equity. The most prominent characteristic of common stockholders is that they are entitled to certain voting rights which enable them to participate in the company governance processes such as electing a board of members, the decision to merge or take over a company or choose external auditors.

Common stockholders receive their share in the profits of the company through dividends and increase in the value of their investment through capital appreciation. However, they are the last in line when it comes to getting dividends or their share back at the time of liquidation. If a company goes bankrupt, the common stockholders receive their share in the company only after the debt holders and preferred stockholders are paid.