Common stock

Definition

Common stock represents ownership shares in a corporation, giving shareholders voting rights and potential dividends. It is listed on the balance sheet under shareholders' equity and reflects the residual interest in the company's assets after liabilities are deducted.

5 Must Know Facts For Your Next Test

1. Common stockholders have voting rights in corporate decisions, typically one vote per share.
2. Dividends paid to common stockholders are not guaranteed and can fluctuate based on company performance.
3. In the event of liquidation, common stockholders are last to receive any remaining assets after all debts and preferred shareholders are paid.
4. The issuance of common stock is a primary method for corporations to raise equity financing.
5. Common stock is recorded at par value plus any additional paid-in capital on the balance sheet.

Review Questions

• What rights do common stockholders typically have?
• How does common stock affect a company's balance sheet?
• What happens to common stockholders in the event of a company's liquidation?

Related terms

Preferred Stock:

Shares that have priority over common stock in dividend payments but usually lack voting rights.

Par Value:

The nominal value of a security stated by the issuer; for stocks, it is a minimum price set upon issuance.

Additional Paid-In Capital: The amount received from shareholders that exceeds the par value of the issued stock.