Glossary
Common stock: what it is and what it gives you
When people say they bought "a stock", they almost always mean common stock. It is the class of share every public company issues.
Common stock is a type of security that represents an ownership interest, or equity, in a company. Holders typically can vote to elect the board of directors, may receive dividends, and are typically last in line if the company is liquidated.
Quick answer
Common stock is a share of ownership, or equity, in a company [1]. It usually lets you vote on directors and share in profits through dividends or a rising price [3]. Dividends are not required [2], and common holders are typically last in a liquidation [1].
Key points
- All publicly traded companies issue common stock, the basic ownership share [2] [1].
- Common shares usually carry votes on matters such as electing directors, and a share of profits through dividends or price gains [3].
- Dividends can be cut or stopped, and in a liquidation common stockholders are last in line [2] [6].
On this page
What is common stock?#
The SEC defines common stock as a type of security that represents an ownership interest, or equity, in a company [1]. FINRA notes that all publicly traded companies issue common stock, and that holding it puts you in a position to share in the company's success or feel the lack of it [2].
When you look up a company by its ticker symbol, check which class of share the quote refers to. Some companies also issue preferred stock, a separate class with different rights. Our explainer on what a stock is covers ownership in more depth.
What rights does common stock give you?#
According to the SEC glossary, common stockholders' rights typically include voting to elect members of the board of directors and voting on certain corporate actions, such as takeover bids, and may include dividends based on the company's profits [1]. Nasdaq's glossary adds that common shares give the holder a share in profits via dividend payments or capital appreciation, meaning a rise in the share price [3].
Two cautions. First, the word is typically. A state investor guide lists rights that common stock purchasers "may" have, such as voting at stockholder meetings and receiving annual reports [4]. Some companies use a dual-class structure in which a holder of super-voting common stock can control the company without owning a majority of its shares [5]. Second, a company may pay dividends on common stock but does not have to, and it can cut the amount or eliminate it [2]. See how dividends work for the details.
Where does common stock rank if a company fails?#
Last. In a bankruptcy liquidation, common stockholders are the last in line to share in the proceeds [6]. Nasdaq describes common stock as having junior status to the claims of secured and unsecured creditors, bondholders and preferred shareholders [3]. The order below follows that description.
| Claim on the company | Rank in a liquidation |
|---|---|
| Secured and unsecured creditors, bondholders | Ahead of all shareholders |
| Preferred shareholders | Ahead of common shareholders |
| Common shareholders | Last, after every claim above |
Order as described by Nasdaq [3] and Investor.gov [6].
That ranking is a large part of the risk. If a company fails, there may be nothing left by the time common holders are reached, and you can lose money you invest in stocks [6].
Frequently asked questions#
Is common stock the same as a share?
Does common stock always pay dividends?
No. A company may pay dividends on common stock but does not have to, and it can cut or stop them [2].
Do I get a vote with fractional shares?
Maybe not. The SEC notes that you may not have voting rights if you own fractional shares; it depends on your broker's program [7].
The bottom line#
Common stock is the ordinary share of a company: a slice of ownership that usually comes with votes and a claim on profits, but no promised dividend and the lowest rank if the company fails. Compare it with preferred stock, and see how new common shares reach the market in an IPO.
Sources
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
