Common Stock

Common stock represents an ownership interest in a corporation.  Rather than purchasing bonds, of which most have a fixed rate of return, investors look to purchase an equity stake for the possibility of stock price appreciation.  While common shares have the greatest potential for capital appreciation, they also carry the most amount of risk, as we will discuss below. 

Common stock can be bought and sold through the major stock exchanges such as the New York Stock Exchange, Nasdaq, and AMEX.  

Common Stock & Voting Privileges

An individuals' ownership interest is equal to the number of shares owned divided by the total number of shares outstanding.  Common stock ownership entitles the owner to voting privileges on company decisions such as the selection of the board of directors and other major event such as a merger or acquisition.

Common Stock Has Limited Liability


Equity ownership in a company also represents a limited liability interest in the company.  The maximum risk that can be taken is merely the amount of money that was paid to acquire the common shares.  No legal action or other claims can be brought up against shareholders.

Additionally, common stock holders are entitled to receive dividends after they are paid to preferred stock holders.  The board of directors will decide how much of the companies profits will be paid out to stock holders.  It is important to note that common stock holders will be the last form of ownership interest that will receive dividends. 

Common Stock & Liquidation

Common stock is the low man on the totem pole.  In the event of liquidation where the company has to sell off its assets and files for bankruptcy, the common stock will be worthless.  Common stock is the last form of ownership in the company to get paid out during a crisis event.  Similarly, during tough times, a company may cut its total dividend payment which trickles down to the common shares last.


Tim Ord
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