What is Common Stock?

Common stock is the main class of stock. When someone mentions “stock”, they are usually referring to common stock.
When you buy common stock, you become an owner of the company.  You are called a Common Shareholder.

As a common shareholder, you usually have Voting Rights.  That means you can vote on important company issues, such as electing the Board of Directors or selling the company.  The more common shares you own, the more votes you have. You can sometimes receive a Dividend, which is a share of the company’s profits, but common shareholders are not guaranteed a dividend.  The Board of Directors votes on if and when you receive a dividend.

You are also in the highest risk position.  If the company goes bankrupt, common shareholders are the last to get any money back.  The company must first pay back its Creditors, who are investors that loaned it money. Then the company pays its preferred shareholders, which is another type of stock.  And finally common shareholders get paid.  But there may not be any money left to give you.

You also have the potential for the highest reward.  If the company is successful, the share price of common stock will likely go up, which means the value of your investment will go up.

Remember, common stock is the main type of stock. So make sure you know the risks and potential rewards in owning common stock.

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