Common Stock

Common stock is the most basic form of corporate ownership. Shareholders receive voting rights — typically one vote per share — allowing them to elect the board of directors and vote on major corporate actions such as mergers, stock splits, and charter amendments. Common stockholders participate in the company's growth through price appreciation and dividends, though dividends are discretionary and not guaranteed.

In the capital structure hierarchy, common stockholders sit at the bottom. In a liquidation, creditors, bondholders, and preferred stockholders are all paid before common shareholders receive anything. This subordinate position is offset by the potential for unlimited upside: as earnings grow, so can the stock price.

Common stock can be issued in different classes (e.g., Class A with full voting rights and Class B with limited voting). Authorized shares are the maximum a company can issue; issued shares have been sold; outstanding shares are currently held by investors; treasury shares have been repurchased by the company and carry no voting rights or dividends.

Rights of common stockholders include the right to receive a stock certificate, the right to transfer shares, the right to inspect certain records, and preemptive rights (if granted) to maintain their percentage ownership when new shares are issued.

> Exam tip: On the SIE and Series 7, know the priority order in liquidation: secured debt → unsecured debt → subordinated debt → preferred stock → common stock. Common stockholders are last. Also remember that common stockholders have limited liability — they can lose no more than the amount invested.