common stock



Type of security that serves as an evidence of proportionate ownership, imparts proportionate voting rights, and gives its holder unlimited proportionate claim on the assets and income of the firm (after the claims of lenders, and other obligations, are satisfied). Common stock constitutes the equity capital (also called risk capital) of the firm which is never paid back (redeemed), and is lost if the firm fails. Common stock usually has a par value (amount for which each share is sold for when first issued) but has no guaranteed value afterwards. In bad years, common stock holders may receive little or no income (dividends) at all. But, in good years, there is no limit to the amount they may receive except the limits imposed by the government, the lenders, or the financial position of the firm. Common stock holders elect directors of the firm and thus participate in determining its policies and direction. But their claim on the firm's assets are subordinate to those of debenture holders, preferred stock (preference share) holders, creditors, and statutory agencies (such as tax authorities). On the winding up of the business, the surplus of the assets over liabilities is divided among common stockholders in proportion to their stockholding. Called ordinary shares in UK and most British Commonwealth countries.

For more information see Common Stock vs. Preferred Stock, and Stock Classes at

Use common stock in a sentence

  • When you are buying a company's stock you're nearly always buying the common stock and that's what everyone's talking about when they talk about the stock price.

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  • I suggested he take ownership of the common stock of the corporation to diversify his wealth and and invest in the company.

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  • With all of Bob's Common stock in the company, he felt that he had some power over both the company's and his own financial situation.

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