Common stock is one form of security issued by a public corporation. Essentially, its purchase provides the shareholder with a specified amount of equity ownership in the issuing company, as well as various rights and privileges connected with the operation of the corporation. Common stock is the most widely issued type of public stock, and is the type of choice for most initial offerings to the general public.
The ownership of common stock usually comes with several privileges. Shareholders are granted the privilege to vote in at least some decisions relevant to the operation of the corporation, such as the selection of people to serve on a board of directors. Depending on the exact regulations regarding the issuance of stock within the company’s by-laws, owing this stock may also allow investors to participate in other voting activities as well.
In return for the purchase of stock, investors also earn a dividend on their shares, based on the performance of the company. Dividends are paid at regular intervals. Most companies also supply supporting documents to shareholders regarding the performance of the stock and how the dividends are calculated.
Other types of stock may be issued by some companies. Preferred stock usually carries additional privileges and a different schedule or formula for paying dividends. Not all companies choose to issue preferred stock, however, and in fact, the bylaws of some businesses do not allow for the issuance of any form of security other than common stock.
In the event that a corporation fails and the assets are liquidated, the value of outstanding shares of common stock may be affected. Before investors realize any partial return on the failed investment, all outstanding bonds issued by the company must be settled. In addition, preferred stockholders will take precedence over common ones. Essentially, the obligations of the company must be addressed according the court of jurisdiction’s ruling on the company liquidation before investors holding common shares of stock will receive any type of compensation.