Common Stock

Common Stock


Common stock is a form of corporate equity ownership, a type of security. The terms “voting share” or “ordinary share” are also used in other parts of the world. It is called “common” to distinguish it from preferred stock. It usually carries with it the right to vote on certain matters, such as electing the board of directors. However, a company can have both a “voting” and “non-voting” class of common stock.

Further Explanation of Common Stock:

If the company goes bankrupt, the common stockholders will not receive their money until the creditors and preferred shareholders have received their respective share of the leftover assets. This makes common stock riskier than debt or preferred shares. The upside to common shares is that they usually outperform bonds and preferred shares in the long run. However, unlike preferred stock the common equity also, in general, receives less dividends.

In essence the riskiness and return for stocks and bonds goes as follows: