Common stock

Common stock is the most basic form of equity ownership in a corporation. Each share represents a proportional claim on the company's earnings and assets. If a company issues 1 million shares and you own 10,000 of them, you own 1% of the business.

Common stockholders have two main sources of potential return: capital appreciation if the share price rises, and dividends if the board of directors chooses to declare them. Dividends on common stock are never guaranteed — the board can raise, cut, or skip them entirely. Stockholders also receive voting rights, typically one vote per share, used to elect the board and approve major corporate actions like mergers or stock splits.

The trade-off for this upside is risk. In a liquidation, common stockholders stand last in line — behind employees, tax authorities, secured and unsecured creditors, bondholders, and preferred stockholders. However, liability is limited: the most a common stockholder can lose is the amount invested. Because a common shareholder's claim comes after everyone else's, common stock is often called the most junior security a company issues.

Common stock is heavily tested on securities licensing exams. The SIE, Series 6, Series 7, Series 65, and Series 66 exams all expect you to know stockholder rights (voting, preemptive rights, access to financial reports), the liquidation priority order, how common stock differs from preferred stock, and which investors it suits — generally those seeking growth and willing to accept market risk.