Common stock: A class of stock where the person who owns the stock shares directly in the success or failure of the business. Common stock, also known as common shares or ordinary shares, is a type of ownership interest in a corporation. When you own common stock in a company, you become a partial owner, or shareholder, of that company. Common stockholders have certain rights and privileges within the company, as well as the potential to earn returns on their investment.
Key characteristics of common stock include:
- Ownership and Voting Rights: Common stockholders have the right to vote at the company’s annual general meetings and on major corporate decisions. Each share typically carries one vote, though some companies may have different structures that give certain shareholders more voting power.
- Dividends: Common stockholders may receive dividends, which are a portion of the company’s profits distributed to shareholders. However, dividend payments are not guaranteed and are at the discretion of the company’s board of directors.
- Capital Appreciation: One of the primary ways common stockholders can earn returns is through capital appreciation. If the company’s value increases over time, the price of its common stock may rise, allowing shareholders to sell their shares at a higher price than they initially paid.
- Limited Liability: Common stockholders are not personally liable for the company’s debts or obligations. Their potential loss is limited to the value of their investment in the company.
- Last in Line for Distribution: In the event of a company’s bankruptcy or liquidation, common stockholders are typically last in line to receive any remaining assets after creditors, bondholders, and preferred shareholders have been paid.
It’s important to note that while common stock offers the potential for high returns, it also carries a higher level of risk compared to other types of investments. The value of common stock can be volatile and influenced by various factors such as company performance, industry trends, economic conditions, and market sentiment.
When considering investing in common stock, individuals should conduct thorough research on the company, its financial health, growth prospects, and industry conditions to make informed investment decisions.